Vodafone taxation issue has become subject matter of much litigation, controversy and interpretations. It has touched the issue of FDI in India, sovereignty and international arbitration. It also witnessed the episode of Vodafone serving notice upon Indian government over retrospective taxation issue.
Meanwhile, the consolidated FDI policy of India 2012 by DIPP was released. It also covered area of FDI in telecom services, ISPs and telecom infrastructure providing sectors of India. One of the essential conditions in this regard says that FDI in telecom sector shall be subject to laws of India and not the laws of the foreign country/countries.
Further, FDI in telecom sector of India and national security issues have also been clubbed. In a parallel development, the FIPB rejected Telenor’s joint venture proposal declaring it pre mature. Clearly, telecom sector of India is heading towards big policy and legislative changes.
International community and diplomatic channels have also been involved in this regard. Diplomatic channels are used to negotiate and generate solutions but they cannot override a well defined and constitutionally valid retrospective taxation amendment law.
India is losing a significant amount through such offshore deals. This is happening because India had no law that could have made such foreign transactions taxable. The government is trying to achieve two tasks. The first one is to formulate and enact a validation law that can cure the defects pointed by the Supreme Court while adjudicating the Vodafone’s case.
Secondly, the Finance Ministry is bringing retrospective amendments to the country’s Income Tax Law so that offshore transactions made after the cut off date can be brought under tax net. This arrangement would bring taxation revenue to India of mass proportion.
Former Finance Minister believed that the proposed retrospective changes in the income tax law were only “clarificatory” and will not override double tax avoidance pacts. He maintained that the clarificatory amendments had been proposed in the Finance Bill 2012 to state the legislative intent of certain provisions of the Income-Tax Act relating to offshore mergers and acquisitions.
Since the proposed amendments would just clarify what is already there in law to remove ambiguity and provide certainty, it will not have any impact on foreign investment flow in the country.
Source: Corporate Laws In India.