US, UK business groups condemn retrospective tax rule

Business lobby groups including those in the US and UK have written to Prime Minister Manmohan Singh protesting plans to retrospectively allow capital gains tax on cross-border acquisitions dating back 50 years.

The proposals announced in the annual Budget last month are causing companies around the world to revaluate investments in India because of uncertainty over the country’s tax laws, seven trade organisations that claim to have more than 250,000 organisations as members said in a letter released today.

“The sudden and unprecedented move in the Bill has undermined confidence in the policies of the government of India toward foreign investment and taxation and has called into question the very rule of law,” the lobby groups, including the United States Council for International Business, said in the letter.

 

“This is now prompting a widespread reconsideration of the costs and benefits of investing in India.”

Finance minister Pranab Mukherjee proposal to change the taxation law came two months after the Supreme Court ruled that Vodafone Group Plc doesn’t have to pay $2.2 billion in tax on its purchase of the local business of Hutchison Whampoa Ltd in 2007.

India’s proposals are inconsistent with international law and create an “intolerable risk” of double taxation, the letter said. The lobby groups accused the government of proposing the measures after it lost a series of tax rulings in the country’s courts, most notably the Vodafone case.

The Indian government, which is struggling to rein in the widest budget deficit among emerging economies, is locked in tax disputes with companies worth more than Rs 40,000 crore ($7.9 billion). Finance Secretary R.S. Gujral said last month the move was just a clarification of the law.

The National Foreign Trade Council Inc, the Confederation of British Industry, the Japan Foreign Trade Council Inc and the Canadian Manufacturers and Exporters are among the other trade bodies which signed the letter.