FM leaves proposal to tax Vodafone-type deals untouched

NEW DELHI: The Finance Minister, Pranab Mukherjee on Monday left untouched the proposal to tax Vodafone-type deals. The Minister held firm on amending the Income Tax Act with retrospective effect to tax capital gains on sale of assets in India through indirect transfers abroad, an apparent reference to Vodafone-type deals.

Mukherjee however, said the move to amend income tax laws retrospectively would not override the provisions of double taxation avoidance agreements India has signed with 82 countries, including Mauritius.

Mukherjee also said retrospective tax would not be applied in cases where tax assessment has been completed.

"The question here is: whether having regard to the Supreme Court's order, the Vodafone case can be regarded as complete?" said Dinesh Kanabar, deputy CEO and chairman for tax at KPMG, which advised Vodafone in the tax case.

Samir Kanabar, a tax partner at Ernst & Young, said Monday's proposals may not benefit Vodafone.

"There was no assessment in the case of Vodafone. It was held to be an assessee in default because it did not withhold tax from Hutch. So, only the fine print can say whether Vodafone has been covered by this," he said.

The government wants to tax some already-completed mergers of foreign companies with Indian assets, potentially putting Vodafone back under the taxman's spotlight for more than $2 billion in taxes even after the Supreme Court ruled the tax office did not have jurisdiction over cross-border deals.

Vodafone bought Hutchison's Indian operations by taking over a subsidiary based in the Cayman Islands, which does not have a tax avoidance treaty with India.

The company has threatened the government with arbitration proceedings saying the tax proposals violated international legal protections granted to Vodafone and other foreign investors in India.