Proposed amendment clarificatory in nature: Pranab Mukherjee

NEW DELHI: Finance minister Pranab Mukherjee has said the proposed amendment that would make all indirect transfers taxable were clarificatory in nature and would not hurt foreign investments.
Mukherjee said the provision 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 in Lok Sabha

"... 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 with some of them even writing to Prime Minister Manmohan Singh saying the proposal 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 from Vodafone for its $11.2 billion acquisition of Hutchison's stake in Hutchison Essar.
The Supreme Court had set aside I-T department's demand for the tax prompting the government to propose the clarifcation.