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August 6, 2021

All you need to know about Retro Tax Amendment

by facelesscompliance in Income Tax

All you need to know about Retro Tax Amendment

In 2012, the government controversially changed tax laws retrospectively. International companies which had acquired assets of Indian companies before then were told they had to pay huge amounts.

Finance Minister Nirmala Sitharaman introduces Taxation Laws (Amendment) Bill in the Lok Sabha. Finance and Corporate Affairs Minister Nirmala Sitharaman introduced the Taxation Laws (Amendment) Bill in the Lok Sabha on Thursday to nullify the relevant retrospective tax clauses that were introduced in 2012 to bring past indirect transfer of Indian assets under the ambit of taxation.

The government has cleared the path for the withdrawal of all retrospective tax demands. It’s a laudable decision, for the 2012 retrospective taxation law not only adversely affected India’s capacity to attract foreign investment but also damaged its reputation, with international courts allowing seizures of Indian properties abroad.  It could provide large relief to Vodafone, whose stock has crashed this week.  The telecom owes ₹ 22,000 crore to the government as payment for license and spectrum fees

An international arbitration tribunal in The Hague last year ruled that India’s $2 billion tax claim on Vodafone was incorrect, and that it breached an investment treaty between India and the Netherlands.  The tax demand against Vodafone will now stand invalidated. Last month, a French tribunal ordered a freeze on some 20 centrally located properties belonging to the Indian government as part of a guarantee of the amount owed to Cairn.

Cairn Energy had also sued Air India in a US court as part of its efforts to enforce the $1.2 billion award that it had won in international arbitration. The company said that Air India should be made liable for the government’s dues to it.

As per the proposed changes, any tax demand made on transactions that took place before May 2012 shall be dropped, and any taxes already collected shall be repaid, albeit without interest. To be eligible, the concerned taxpayers would have to drop all pending cases against the government and promise not to make any demands for damages or costs.

India has been caught in more than a dozen such cases against companies over retrospective tax claims.  The controversial retrospective law was introduced by the previous Congress-led UPA government, but the tax cases that were filed by it were pursued by the BJP government.

Finance Minister Nirmala Sitharaman explained the rationale of the Bill to repeal retrospective taxation: “In the past few years, major reforms have been initiated in the financial and infrastructure sector which has created a positive environment for investment in the country. However, this retrospective clarificatory amendment and consequent demand created in a few cases continues to be a sore point with potential investors.”

She went on to add, “The country today stands at a juncture when quick recovery of the economy after the COVID-19 pandemic is the need of the hour and foreign investment has an important role to play in promoting faster economic growth and employment.”

US-India Strategic and Partnership Forum (USISPF) on Thursday applauded the Indian move to withdraw the retrospective law relating to #tax on indirect transfers

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