I-T amendments not to impact foreign investment, says Pranab

NEW DELHI: Assuaging concerns of foreign investors on proposed amendments to tax laws retrospectively, Finance Minister Pranab Mukherjee today said they are "clarificatory" in nature and will not have any impact on foreign investments.

While replying to a query in the Lok Sabha during Question Hour, the Minister further said that proposed amendments will not override the provisions of the Double Taxation Avoidance Agreements (DTAA) with 82 countries.

Proposed amendments "just clarify" what is already there in law to remove ambiguity and provide certainty, he said.

"... it will not have any impact on foreign investment flow in the country. This is more so because these clarifications ... will not override the provisions of Double Taxation Avoidance Agreements with 82 countries...," he said.

DTAAs are relevant for taxation of non- residents in the case of offshore merger and acquisitions.

In Finance Bill, 2012, Mukherjee proposed amendments to state the legislative "intent" of certain provisions of the Income-tax Act, 1961, relating to offshore mergers and acquisitions.

The proposals evoked criticism from foreign investors and global trade bodies. Some of them wrote to Prime Minister Manmohan Singh and other ministers saying the proposal to amend the Act to bring into tax net Vodafone-type overseas deals involving domestic assets would hurt foreign investment.

Once the amendment is approved by Parliament, the government may initiate the process of raising a tax demand of about Rs 11,000 crore for its acquisition of Hutchison's stake in Hutchison Essar.

In May 2007, Vodafone had acquired a majority stake in Hutchison Essar Ltd from Hutchison in a USD 11.2 billion deal.

The Supreme Court had set aside I-T department's demand for the tax.