India moves to repeal controversial retrospective tax amendment, big relief for Vodafone

The bill  effectively means that the government is reaching out to Vodafone and Cairn Energy for a truce in the retrospective tax dispute cases where both have won international arbitration awards.
Union Finance Minister Nirmala Sitharaman, seen during a two-day visit to Bengaluru. (File photo | Vinod Kumar T)
Union Finance Minister Nirmala Sitharaman, seen during a two-day visit to Bengaluru. (File photo | Vinod Kumar T)

NEW DELHI: In what could be termed a big climbdown from its aggressive stance in the Cairn Energy and Vodafone Plc tax dispute cases, the government on Thursday moved a bill in Parliament to withdraw the retrospective amendment made in 2012 for taxing capital gains arising from indirect transfer of assets located in India.

The Taxation Amendments Bill proposes to amend the Income Tax Act 1961 so as to ensure that no tax demand will be raised in future on the basis of the said retrospective amendment for any indirect transfer of Indian assets if the transaction was undertaken before 28 May 2012 (the date on which the Finance Bill 2012 received the assent of the President). 

This effectively means that the government is reaching out to Vodafone and Cairn Energy for a truce in the retrospective tax dispute cases where both have won international arbitration awards. UK-based Cairn Energy has even threatened the government with attaching its properties overseas to recover arbitration award.

The Bill aims to settle all litigations and arbitrations that have arisen out of the said amendment in 2012. Full amount of tax, if paid by the companies, will be refunded but without interest. 

The Bill, however, says that all tax demands raised for indirect transfer of Indian assets before 28 May 2012 will be nullified only if the affected parties withdraw pending litigation and furnish undertakings to the effect that no claim for cost, damages, interest, etc., would be filed. It is also proposed to refund the amount paid in these cases without any interest thereon.

As a result of the Bill, demand created before 28 May 2012 will be nullified in 17 cases including those in Cairn Energy and Vodafone.

"The addressal of the long pending ask of foreign investors for removal on retrospective tax levy on indirect transfers would go a long way in placing India as a more attractive investment destination and rekindle the hope that there would be no longer any ghost of retrospective taxation norms being applied," says Ami Shah, Partner, Deloitte India.

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