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One-time scheme to settle retro tax cases

In a move to win over the confidence of international investors, the government today offered one-time settlement of cases emanating from retrospective amendment of tax laws, by asking companies to pay the basic tax demand and get a waiver on interest and penalty. 

By R. Suryamurthy
  • Published 1.03.16
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Winning move

New Delhi, Feb. 29: In a move to win over the confidence of international investors, the government today offered one-time settlement of cases emanating from retrospective amendment of tax laws, by asking companies to pay the basic tax demand and get a waiver on interest and penalty. 

The move is expected to finally bring to an end the long pending dispute tax authorities have with Vodafone and Cairn Energy among others. 

In Vodafone’s case, the basic tax duties are about Rs 8,000 crore, while interests and penalties could mount to over Rs 14,000 crore. Analysts said while some of the cases may be settled by this route, big ticket cases like Vodafone were unlikely to be settled as these firms were questioning the very basis of India levying taxes on global deals registered at tax havens to sell or buy shares which had underlying Indian assets. 

“In order to give an opportunity to the past cases, which are ongoing under the retrospective amendment, I propose a ‘One Time’ scheme of dispute resolution for them in which subject to their agreeing to withdraw any pending case lying in any court or tribunal or any proceeding for arbitration, mediation, etc under BIPA, they can settle the case by paying only the tax arrears in which case liability of the interest and penalty shall be waived,” finance minister Arun Jaitley said in his budget speech.

He today also reiterated that the government will “provide a stable and predictable taxation regime. We will not resort to such (retrospective) amendments in future. I had also hoped then that the cases pending in various courts and other legal fora relating to certain retrospective amendments undertaken to the Income Tax Act, 1961, through the Finance Act 2012, will soon reach their logical conclusion,” he said.

“I would like to reiterate that we are committed to provide a stable and predictable taxation regime,” he said.

“Retrospective amendments not to be made going forward and special regime to settle past disputes on indirect transfer tax, showcases government's commitment towards creating a stable and predictable tax regime in India,” said Naveen Aggarwal, Partner (Tax) KPMG in India.

“We will of course study the detail of what the Finance Minister has proposed today, while continuing to seek resolution of this matter through international arbitration. Vodafone has always maintained that there was no tax to pay at the time it completed its acquisition of Hutchison's business in 2007. This view was upheld unanimously by the Supreme Court of India in January 2012. Furthermore, Vodafone was the acquirer in this transaction. The company made no capital gain whatsoever. Given the clarity of the Indian law in force in 2007, there was no legal basis to withhold tax. In light of the retrospective law change in May 2012, Vodafone commenced international arbitration proceedings under the bilateral investment treaty in April 2014,” said Ben Padovan, spokesperson, Vodafone Group.