India sticks to its guns on tax amendments

Firms recording capital gains on India assets must pay taxes: FM to Geithner

India has refused to budge from its stand on retrospective amendments to the Income Tax Act. It has categorically told Washington that companies recording capital gains on assets in India would have to pay tax either in India or the country of origin.

The reaffirmation of India’s position came after India had conveyed this stand to the United Kingdom earlier this month, even as investors continued to say the proposed move may harm investment sentiments.

The message was given at a meeting between Finance Minister Pranab Mukherjee and US Treasury Secretary Timothy Geithner in Washington on Thursday, said officials at the Indian mission in the US capital. Geithner had raised the issue of retrospective amendments to the Income Tax Act.

“It was informed (to the US side)...Indian tax laws are very clear. Companies making capital gains from assets located in India would have to pay taxes either in the country of their origin or in India,” said the officials, according to a release issued by the finance ministry here.

Mukherjee is in Washington to attend spring meetings of the International Monetary Fund and the World Bank, along with other important engagements on the sidelines.

UK-based Vodafone and the Indian government had earlier locked horns over the latter’s move to amend the Income Tax Act to bring deals like the one Vodafone had entered into in 2007 under the tax net. The case pertains to Vodafone’s $11.5-billion acquisition of 67 per cent stake in Hutchison India (now Vodafone) in February 2007. Though the liability to pay the tax was on Hutch, the tax department said Vodafone should have withheld the tax, according to the provisions of the Income Tax Act, while making the payment to the Hong-Kong based company.

The Supreme Court had earlier rejected the finance ministry’s argument that Indian tax authorities had jurisdiction on taxing the Vodafone deal.

However, in the Budget, the government had clarified its intention of a legislature on this by proposing to amend the Income Tax Act with effect from 1962. On Tuesday, Vodafone’s Dutch subsidiary, Vodafone International Holdings BV, had served a notice of dispute to the Indian government, asking it to abandon or amend retrospective aspects of the proposed Finance Bill 2012 or face arbitration proceedings.

The ministry’s release said the US had been informed this was not a case of double taxation, but ensuring companies liable to pay taxes must these.