Telecom Lead India: Vodafone tax issue may be
re-opened by the government, as the Union Budget 2012 clarified the definitions
of “property” and “transfer”. These two words affected the
tax department’s jurisdiction on the Vodafone-Hutch transaction.
The Finance Bill says property is defined and included
“any rights in or in relation to an Indian company;” transfer is
defined as “disposing of or parting with an asset or any interest” in
property.
According to a report in Economic Times, the taxability
of the indirect transfers has unfolded through clarificatory and retrospective
amendments in the provisions codifying the source base taxation, which will
impact the cross border transactions and the debate will again knock the doors
of the Court.
Vodafone verdict in $2.2 billion tax case
Recently, Vodafone won the $2.2 billion tax case
against the income tax department.
Supreme Court Chief Justice S.H. Kapadia recently ruled
that the tax department has no jurisdiction over Vodafone’s purchase of mobile
assets in India.
Before the ruling, the Indian authorities said the deal
was liable for tax because most of the assets were based in India and because
under local tax law, buyers have to withhold capital gains tax liabilities and
pay them to the government.
However, contending to the matter, Vodafone said it
believes Indian tax office has no right to tax the transaction between two
foreign entities, and even if any tax is to be paid, it should be paid by the
seller not the buyer.
Vodafone, fighting the tax bill over its $11 billion deal
to buy Hutchison Whampoa’s Indian mobile business in 2007, had appealed to the
Supreme Court after losing the case in the Bombay High Court in 2010.
Responding to the Union Budget 2012, Partha Iyengar, vice
president, Distinguished Analyst, Regional Research Director, India, said:
The budget overall is a fairly political budget, with very little in the way
of bold reforms to drive economic growth. Given the current economic climate it
seems to be focused on not upsetting anyone too much, by not trying to please
anyone too much.
The only slight silver lining is the verbal emphasis and
some increase in outlays to the infrastructure sector, but, given the massive
requirements here, even this is likely to be seen as too little too late.
From an IT sector perspective, there is nothing specific that is either a
strong negative or positive. Some of the key areas of concern for the industry,
like skills development have not received any major focus.
