Sunday, April 29, 2012

Vodafone Taxation, Parliament, International Treaty And Taxation Issues Of India

Vodafone taxation issue has become subject matter of much litigation, controversy and interpretations. It has touched the issue of FDI in India, sovereignty and international arbitration. It also witnessed the episode of Vodafone serving notice upon Indian government over retrospective taxation issue.

Meanwhile, the consolidated FDI policy of India 2012 by DIPP was released. It also covered area of FDI in telecom services, ISPs and telecom infrastructure providing sectors of India. One of the essential conditions in this regard says that FDI in telecom sector shall be subject to laws of India and not the laws of the foreign country/countries.

International community and diplomatic channels have also been involved in this regard. Speaking to Muntazir Abbas of CIOL, noted Supreme Court counsel and managing partner at Perry4Law firm Praveen Dalal said that diplomatic channels are used to negotiate and generate solutions but they cannot override a well defined and Constitutionally valid retrospective taxation amendment law.

Dalal believes that India is losing a significant amount through such offshore deals. This, he said, is happening because India had no law that could have made such foreign transactions taxable.

The government, Dalal said, is trying to achieve two tasks. “The first one is to formulate and enact a validation law that can cure the defects pointed by the Supreme Court while adjudicating the Vodafone’s case,” he informed.

Secondly, as Dalal points out, the Finance Ministry is bringing retrospective amendments to the country’s Income Tax Law so that offshore transactions made after the cut off date can be brought under tax net. This arrangement, Dalal said would bring taxation revenue to India of mass proportion.

It seems even the Finance Minister Mr. Pranab Mukherjee also agrees with Praveen Dalal. Finance Minister believes that the proposed retrospective changes in the income tax law are only “clarificatory” and will not override double tax avoidance pacts. He maintains that the clarificatory amendments had been proposed in the Finance Bill 2012 to state the legislative intent of certain provisions of the Income-Tax Act relating to offshore mergers and acquisitions.

Since the proposed amendments just clarify what is already there in law to remove ambiguity and provide certainty, it will not have any impact on foreign investment flow in the country, Mr Mukherjee said.

Law Minister Salman Khurshid has informed that the issue of amending the I-T Act, 1961, is a part of the finance bill, and will be taken up by Parliament in the first week of May and I have to go by what Parliament decides.

So the ball is now in Indian Parliament’s court and it has to play with it really nicely, says Praveen Dalal. Needless to mention, Parliament of India has to do it in a “Constitutional Manner” suggests Dalal.