Law tax

Government introduces bill in LS to remove retrospective tax law, tax demand against Vodafone, Cairn to be withdrawn

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Highlights

  • Finance Minister Nirmala Sitharaman presented the Tax Laws (Amendment) Bill 2021 to Lok Sabha
  • The bill seeks to withdraw tax claims made on the indirect transfer of Indian assets before May 28, 2012.
  • This is an important government move at a time when most international investors are considering investing in India, Pranav Sayta of EY India told ET Now.

New Delhi: Narendra Modi’s government on Thursday introduced a Lok Sabha-style bill to suppress retrospective tax demands it had made against companies such as UK’s Cairn Energy Plc and Vodafone Group.

Finance Minister Nirmala Sitharaman introduced the Tax Laws (Amendment) Bill 2021 in the Lok Sabha, which aims to withdraw tax demands made on the indirect transfer of Indian assets by May 28, 2012.

The Bill proposes to amend the Income Tax Act 1961 to provide that no tax claim will be made in the future on the basis of the said retrospective amendment for any indirect transfer of Indian assets. if the transaction was initiated before May 28, 2012.

The bill further proposed to provide that “the request for indirect transfer of Indian assets made before May 28, 2012 will be rescinded if specified conditions are met, such as the withdrawal or the provision of a withdrawal commitment. an ongoing litigation and the provision of an undertaking to the effect that no claim for costs, damages, interest, etc., will be filed. “

Previously, India had lost the retrospective tax claim case against Vodafone and, in December of last year, filed an appeal. In September, an international arbitration tribunal in The Hague ruled that India’s imposition of a tax liability on Vodafone, as well as interest and penalties, violated an investment treaty between India and the Netherlands.

This is an important government move at a time when most international investors are considering investing in India, Pranav Sayta of EY India told ET Now.

“The withdrawal of the retrospective amendment relating to the taxation of indirect transfers is a welcome step and would revive the choice of India as a favorable investment destination coupled with low tax rates. For those in dispute, the government has planned to settle them without levying any tax in addition to refunding any taxes collected, ”said Amrish Shah, partner of Deloitte India.

Shah said one of the main pitfalls for foreign investment is the sudden retrospective tax levy on indirect transfers – with its removal India is bound to be more favored by foreign players as tax rates are also very attractive. .

This would “go a long way in making India a more attractive investment destination and would rekindle the hope that there would no longer be the ghost of retrospective tax standards applied,” Shah added.