'Corporates hide behind multi-layered structures'

Unfazed at the flak received for its proposal to amend Income Tax (I-T) Act with retrospective effect of 1962 to bring Vodafone-Hutchison deal among other transactions under the tax net, the finance ministry on Saturday said if India will be willing to let go its taxing right only because the investor chooses to create multiple structures to hide the real transaction.

The ministry also clarified there is no question of reopening old cases. "In exceptional cases, where any case has escaped attention of tax administration, they can be reopened, but only of the past six years," a note circulated to media by the ministry said. This is not a case of double taxation, but double non-taxation, the note said.

The ministry expressed confidence that foreign investment will not be deterred due to proposed amendments as these changes provide clarity to investors. It also raised the question of equity among honest common tax payers and wealthy corporate which can create multiple structures.

“One must note that the cases like Vodafone are not a case of allocation of taxing rights between two jurisdictions. These are cases of double non-taxation,” the note said.

The ministry said it was a question of equity in taxation. “Are we moving towards regressive taxation where ordinary taxpayer pays its taxes honestly and those who have huge wealth do not pay taxes by taking recourse to tax avoidance through creation of multiple structure and routing their investment through low tax or no tax jurisdictions,” the ministry said.

The amendments to the I-T Act are important as the Supreme Court had held that

I-T Department does not have jurisdiction to levy a Rs 11,000 crore tax on the overseas deal between Vodafone Inter-national Holdings and Hutchison Group for its assets in Hutch Essar (now known as Vodafone). Through the $11.2 billion deal in May 2007, Vodafone had acquired 67 per cent stake in the Hutchison-Essar Ltd from Hong Kong-based Hutchison through companies based in the Netherlands and Cayman Island. The government has filed a review petition on the decision.

It proposes to amend the I-T Act saying that overseas transactions will be taxed if the share or interest derives directly or indirectly its value substantially from the assets located in India.