Corporate May 8, 2012
Finance Minister Pranab Mukherjee today justified the retrospective tax law change which would make Vodafone liable to pay taxes worth over Rs 10,000 crore.
He left no doubt that they would make amendments to law to ensure that telecom major Vodafone paid tax for acquisition of its Indian assets from Hutchison Whampoa and would not be deterred by the Supreme Court's verdict against the government. According to reports, the tax demand notice for Rs 12,200 crore may be sent to Vodafone around 25 May after obtaining the president's assent for the Finance Bill.
"My whole argument against Vodafone was on that point. I would like to be guided by double tax avoidance agreement or tax. It cannot be that someone will make money on an asset in India and not pay tax in India or in its country of origin," Mukherjee said while debating on the Finance Bill in Lok Sabha today. The bill is yet to be passed by Lok Sabha.
It seems like the UK telecom major will be forced to pay withholding tax of 7,900 crore, besides penalty and interest which could push the total tax burden to nearly 20,000 crore.
Mukherjee said that the UK had also allowed taxes to be applied retrospectively if the acquisition had taken place prior to a double tax avoidance agreement being signed and India could do the same.
"If they are entitled then India is surely entitled. India is not inferior to anyone. We cannot be a tax haven just to attract foreign investment. Please remember, when the investment was also not there we did not eat lizard," the Finance Minister said.
Mukherjee said that the Supreme Court was free to interpret law but as a legislator he had the freedom to amend the laws.
"I will say I am fully aware of my right as legislator," he said adding that Parliament was entitled to make legislation in the country.
"The Supreme Court may interpret law but Parliament has ability to make amendments to law to correct Supreme Court's judgement," he said.
"By interpretation of law our ability of amending law is not taken away," the Finance Minister said.
India has proposed to amend laws retrospectively to tax some already-completed mergers of foreign companies with Indian assets, potentially putting Vodafone back under the taxman's spotlight for more than $2 billion in taxes even after the Supreme Court ruled the tax office did not have jurisdiction over cross-border deals.
Vodafone has not yet approached the government for an out of court settlement for the tax dispute, but the government is determined to tax the British telecom company over its 2007 acquisition of Hong Kong-based Hutchison Whampoa's mobile operations in India.
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