I-T LAW MAY BE AMENDED FOR FOREIGN DEALS The finance ministry is
considering amending the income-tax act empowering the tax authorities
to spare companies from paying penalty as well as interest on taxes
levied on indirect transfer of Indian assets through sale of shares
abroad. Tax experts say the measure, if incorporated in the upcoming
budget, will be applicable to a clutch of transactions carried out in
recent
years, notably Vodafones acquisition of Indian telecom major Hutch Essar, Foster Australias sale of its Indian arm to SABMiller and the acquisition of Idea Cellular by the Aditya Birla group. Senior officials in the tax department confirmed that a change in the incometax act was being considered. While the assessing officer dealing with a particular case has the power to exempt a taxpayer from interest and penalties, the thinking in the ministry is that changing the law to provide statutory backing would make the tax regime more predictable. The tax department officials cautioned that a final decision had not been reached. Further, its not clear whether interest would be totally scrapped or only in part. The need for a provision to explicitly waive penalty and interest on the tax payable on such cross-border deals arises from a provision in the 2012-13 budget, which was inserted to retrospectively tax past cross-border deals. The current thinking was that interest could be charged from the day the controversial retrospective amendment came into force. The retrospective amendment was unveiled when the budget was presented to Parliament on March 16, 2012. The budget was passed by Parliament on May last year and the President gave her assent later that month. T P Ostwal, senior chartered accountant told ET Its only fair to the taxpayer not to charge interest for a period in which he was not sure whether to pay tax in India or not. The tax demand on cross-border acquisitions of Indian assets or companies would cross about Rs. 60,000 crore and half of this amount is accounted for by interest and penalty, according to an informal estimate prepared by the income-tax department. Lakshmi Narayanan, Head of Tax Deloitte India told ET: There are already guidelines to waive off penalty and interest in such cases. However, if it comes as a law there will be a greater clarity on such issues. The Income-tax department last month issued a tax demand of about Rs. 14,000 crore to Vodafone in the first week of January. Of this, the original tax demand is just over Rs. 7,000 crore, the rest being interest calculated from 2007. The provision was introduced after the Supreme Court ruled that Vodafone could not be taxed in India on its acquisition of Hutchison-Essar in 2007. The transaction effected in 2007 involved the purchase by Vodafone of a controlling 67% stake in Hutch-Essar from a company controlled by Hong Kong's Hutchison International. Since then the Indian tax authorities have pursued Vodafone on the ground that it has not withheld tax. Vodafone denies that the transaction is taxable. The furor over the tax claim has hurt Indias regime as a major global investment destination prompting a rethink on the part of the authorities. A committee, headed By Parthasarathi Shome, a tax expert, has recommended that the law should be made prospective. As an alternative he had suggested waiving interest and penalty. – www.economictimes.indiatimes.com
years, notably Vodafones acquisition of Indian telecom major Hutch Essar, Foster Australias sale of its Indian arm to SABMiller and the acquisition of Idea Cellular by the Aditya Birla group. Senior officials in the tax department confirmed that a change in the incometax act was being considered. While the assessing officer dealing with a particular case has the power to exempt a taxpayer from interest and penalties, the thinking in the ministry is that changing the law to provide statutory backing would make the tax regime more predictable. The tax department officials cautioned that a final decision had not been reached. Further, its not clear whether interest would be totally scrapped or only in part. The need for a provision to explicitly waive penalty and interest on the tax payable on such cross-border deals arises from a provision in the 2012-13 budget, which was inserted to retrospectively tax past cross-border deals. The current thinking was that interest could be charged from the day the controversial retrospective amendment came into force. The retrospective amendment was unveiled when the budget was presented to Parliament on March 16, 2012. The budget was passed by Parliament on May last year and the President gave her assent later that month. T P Ostwal, senior chartered accountant told ET Its only fair to the taxpayer not to charge interest for a period in which he was not sure whether to pay tax in India or not. The tax demand on cross-border acquisitions of Indian assets or companies would cross about Rs. 60,000 crore and half of this amount is accounted for by interest and penalty, according to an informal estimate prepared by the income-tax department. Lakshmi Narayanan, Head of Tax Deloitte India told ET: There are already guidelines to waive off penalty and interest in such cases. However, if it comes as a law there will be a greater clarity on such issues. The Income-tax department last month issued a tax demand of about Rs. 14,000 crore to Vodafone in the first week of January. Of this, the original tax demand is just over Rs. 7,000 crore, the rest being interest calculated from 2007. The provision was introduced after the Supreme Court ruled that Vodafone could not be taxed in India on its acquisition of Hutchison-Essar in 2007. The transaction effected in 2007 involved the purchase by Vodafone of a controlling 67% stake in Hutch-Essar from a company controlled by Hong Kong's Hutchison International. Since then the Indian tax authorities have pursued Vodafone on the ground that it has not withheld tax. Vodafone denies that the transaction is taxable. The furor over the tax claim has hurt Indias regime as a major global investment destination prompting a rethink on the part of the authorities. A committee, headed By Parthasarathi Shome, a tax expert, has recommended that the law should be made prospective. As an alternative he had suggested waiving interest and penalty. – www.economictimes.indiatimes.com
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