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<ul class="p-rich_text_list p-rich_text_list__bullet"><li>India has decided to do away with a 2012 law that allowed the government to tax profits from earlier years even though theywere not taxable at the time.</li><li>This brings to end a decade-long tussle with foreign companies that saw the law as a deterrent to investments in India.</li><li>Finance Minister Nirmala Sitharaman introduced 'The Taxation Laws (Amendment) Bill, 2021' which will undo the damage from the 2012 law.</li><li>The bill also proposes to refund the amount paid so far, in these cases, without any interest thereon.</li></ul>In a bid to bury the ghost of retrospective taxation, the government on Thursday brought a bill in the Lok Sabha to withdraw all back tax demands on companies such as Cairn Energy and Vodafone and said it will refund the money collected to enforce such levies. Finance Minister Nirmala Sitharaman introduced 'The Taxation Laws (Amendment) Bill, 2021' in the Lok Sabha that seeks to withdraw tax demands made using a 2012 retrospective legislation to tax the indirect transfer of Indian assets. The bill provides for the withdrawal of tax demand made on "indirect transfer of Indian assets if the transaction was undertaken before May 28, 2012 (i.e. the day the <keyword id="996979" type="PERSON" weightage="20" keywordseo="retrospective-tax">retrospective tax</keyword> legislation came into being)." "It is also proposed to refund the amount paid in these cases without any interest thereon," it said. The bill has a direct bearing on long-running tax disputes with British firms Cairn Energy Plc and Vodafone Group. The Indian government has lost two separate arbitrations brought by the two companies against the levy of retrospective taxes. While the government has virtually no liability in the Vodafone case, it has to refund USD 1.2 billion to Cairn Energy for the shares of the company it had sold, tax refund withheld and dividends confiscated. The bill states that the issue of taxability of gains arising from the transfer of assets located in India through the transfer of shares of a foreign company (indirect transfer of Indian assets) was a subject matter of protracted litigation. The Supreme Court in 2012 had given a verdict that gains arising from indirect transfer of Indian assets are not taxable under the extant provisions of the Act. But to circumvent this, the provisions of the Income Tax Act, 1961 were amended by the Finance Act, 2012 with retrospective effect, to clarify that gains arising from the sale of shares of a foreign company is taxable in India if such shares, directly or indirectly, derive their value substantially from assets located in India. "Pursuant thereto, income-tax demand had been raised in 17 cases. In two cases assessments are pending due to stay granted by High Court," the objects of the Bill said. Out of the 17 cases, arbitration under Bilateral Investment Protection Treaty with the United Kingdom and the Netherlands had been invoked in four cases. "In two cases, the Arbitration Tribunal ruled in favour of the taxpayer and against the Income Tax Department," it said in a reference to arbitration awards won by Cairn and Vodafone. "The said clarificatory amendments made by the Finance Act, 2012 invited criticism from stakeholders mainly with respect to the retrospective effect given to the amendments. It is argued that such retrospective amendments militate against the principle of tax certainty and damage India's reputation as an attractive destination," it said. While the government has in the past few years brought major reforms in the financial and infrastructure sector to create a positive environment for investment in the country, "the retrospective clarificatory amendment and consequent demand created in a few cases continue to be a sore point with potential investors," it said. 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. "The Bill proposes to amend the Income-tax Act, 1961 so as to provide that no tax demand shall be raised in future on the basis of the said retrospective amendment for any indirect transfer of Indian assets if the transaction was undertaken before 28th May 2012 (i.e., the date on which the Finance Bill, 2012 received the assent of the President)," it said. It further proposed to provide that the demand raised for indirect transfer of Indian assets made before May 28, 2012 shall be nullified on fulfilment of specified conditions such as withdrawal or furnishing of undertaking for withdrawal of pending litigation and furnishing of an undertaking to the effect that no claim for cost, damages, interest, etc shall be filed. It also proposed to "refund the amount paid in these cases without any interest thereon," it said. The bill proposes to amend the Finance Act, 2012 so as to provide that the validation of demand under section 119 of the Finance Act, 2012 shall cease to apply on fulfilment of specified conditions such as withdrawal of pending litigation and furnishing of an undertaking that no claim for cost, damages, interest, etc shall be filed. 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Indian government brings in a bill to bury the infamous retrospective tax that haunted Cairn and Vodafone for nearly a decade

After <a href="http://www.businessinsider.in/Tax-demand-against-Vodafone-and-Cairn-Energy-remains-valid/articleshow/51213121.cms">Vodafone</a> Group, UK’s <a href="http://www.businessinsider.in/searchresult.cms?query=cairn+energy">Cairn Energy</a> plc was slapped with a tax demand notice of more than Rs 29,000 crore, including Rs 18,800 crore in back dated interest. 
 This move comes at a time when the Indian government said it will not raise any fresh tax demand using <keyword id="996979" type="UNKNOWN" weightage="20" keywordseo="retrospective-tax">retrospective tax</keyword> legislation. 
 
The notice was however issued before <a href="http://www.businessinsider.in/searchresult.cms?query=arun+jaitley">Finance Minister Arun Jaitley</a> in his Budget for 2016-17 made a one-time offer to waive interest and penalty if the companies paid the principal amount to settle the retrospective tax disputes. 
 "The assessment order is in the amount of Rs 10,247 crore (approximately USD 1.6 billion) plus interest back dated to 2007 totalling Rs 18,800 crore (approximately USD 2.8 billion)," <keyword id="128650" type="COMPANY" weightage="20" keywordseo="Cairn-Energy">Cairn Energy</keyword> said announcing its earnings. 
 
I-T Department alleges that Cairn Energy made a capital gain of Rs 24,503.50 crore in 2006 when it transferred shares of Indian assets that were held in a subsidiary set up in the tax haven of Jersey, to newly incorporated Cairn India. 
 
It listed Cairn India Ltd on the stock exchanges through an initial public offering (IPO) thereafter. Through the IPO it raised Rs 8,616 crore and then in 2011 went on to sell majority stake in Cairn India to mining giant Vedanta Group for USD 8.67 billion.

Cairn Energy slapped with Rs 29, 000 crore retrospective tax

With retrospective <a href="http://www.businessinsider.in/budget-2016/tax">taxation</a> continuing to rile foreign investors, the Budget tomorrow may look to address their concerns with a view to resolving the legacy issues. 
 Chief Economic Advisor <keyword id="6355547" type="PERSON" weightage="20" keywordseo="Arvind-Subramanian">Arvind Subramanian</keyword> said that the present government is taking "consistent steps" to deal with the legacy tax issues to regain investor confidence. 
 
"Slowly, slowly they (government) are cleaning up the legacy issue. I think they will continue to do so going forward and hopefully so in the Budget. It's a long drawn agenda that we need to clean up tax system," he said. 
The continuation of multi-billion dollar tax liability imposed by the previous UPA government using a retrospective legislation, has been a matter of concern for foreign investors who had hoped that the BJP government will quickly resolve them. 
 
 
Earlier this month, the tax department took the unusual step of sending a reminder notice to Vodafone for payment of Rs 14,200 crore of taxes on an issue that is under arbitration. 
 
Even after two years, the arbitration in the <a href="http://www.businessinsider.in/searchresult.cms?query=Vodafone+">Vodafone</a> case has not yet started in absence of appointment of a presiding judge on a three member arbitration panel. 
 
The Rs 10,247 crore tax issue of Cairn Energy Plc of UK could manage to get a full panel constituted, even though the process started much later than Vodafone, only after the issue was brought to the notice of Prime Minister's Office. 
 Both Prime Minister <keyword id="6354477" type="PERSON" weightage="20" keywordseo="Narendra-Modi">Narendra Modi</keyword> and Finance Minister <a href="http://www.businessinsider.in/searchresult.cms?query=Arun+Jaitley+">Arun Jaitley</a> have repeatedly stated that no new tax liability would be created using the retrospective law, the lingering of the disputes has not gone down well with foreign investors. Many of them had hoped that the government may use the A P Shah panel that had sorted out the contentious issue of levy of <keyword id="73398" type="ORGANIZATION" weightage="20" keywordseo="MAT">MAT</keyword> on capital gains made by FPIs and FIIs, to resolve these legacy issues. 
 
A top executive at a foreign company the easiest way to resolve these issues is to refer the pending cases to the Shah panel as they had done in the MAT issue and implement its recommendations. 
 
Subramanian said the government had proactively resolved the MAT issue and is working to do so for the remaining legacy issues.

Budget
2016 may address retrospective tax concerns, says Chief Economic Advisor Arvind Subramanian

<keyword id="15492" type="CITY" weightage="100" keywordseo="Vodafone">Vodafone</keyword> India is facing <keyword id="45031" type="PERSON" weightage="100" keywordseo="Tax">tax</keyword> liability and interest amounting to more than Rs 27,000 crore, the company said in its annual report. Vodafone said its Indian subsidiary had received a letter in January 2013, reminding it of the tax demand of Rs 14,200 crore regarding the dispute over acquisition of Hutchinson in 2007. 
 
The company faces tax demand following the retrospective tax amendment brought about in 2012. 
 The report said, “Vodafone International Holdings BV (VIHBV) has not received any formal demand for taxation following the <keyword id="6374292" type="UNKNOWN" weightage="100" keywordseo="Finance-Act">Finance Act</keyword>, 2012, but it did receive a letter on January 3, 2013, reminding it of the tax demand raised prior to the Indian Supreme Court’s judgment and purporting to update the interest element of that demand in a total amount of Rs 142 billion.” 
 
Besides, the UK-based telecom company is also facing tax liability of more than £1billion. These claims pertain to transfer pricing and value-added tax. 
 
According to the report, “Vodafone India (VIL) and Vodafone India Services Pvt Ltd (VISPL) are involved in a number of tax cases with total claims exceeding £1 billion plus interest and penalties of up to 300% of the principal.” 
 
At current rate, £1 billion is worth Rs 9,900 crore. 
 
The Supreme Court had ruled in favour of Vodafone. However, the government of India amended the law with retrospective effect in 2012.

Vodafone India Faces Tax Liability Of More Than Rs
27,000 Crore

New Delhi, Mar 10 () British oil explorer Cairn Energy Plc expects an international arbitral tribunal to give a decree by the summer of 2020 on its challenge to the Indian government seeking Rs 10,247 crore in retrospective taxes. The three-member tribunal, which had in December 2018 completed main court hearings in the British company's challenge to the Indian government using a retrospective legislation to seek Rs 10,247 crore in taxes, was supposed to give an award by February 2019, but in March 2019, it delayed it to 2019-end and then to the summer of 2020. "All formal hearings and submissions have now been made and the tribunal is in the process of drafting its award. The tribunal has indicated that it expects to be in a position to issue the award in the summer of 2020," Cairn said in its half-yearly earnings announcement on Tuesday. No reason was given by the tribunal for the delay in the award. Cairn said it is seeking full restitution for losses totalling more than USD 1.4 billion resulting from government expropriation of its investments in India in 2014. The company, which gave the country its biggest oil discovery, received a notice from the income tax department in January 2014, requesting information related to the group reorganisation done in 2006. Alongside, the department attached the company's near 10 per cent shareholding in its erstwhile subsidiary, Cairn India. In March 2015, the tax department sought Rs 10,247 crore in taxes on alleged capital gains made by the company in the internal reorganisation. Cairn Energy had in 2010-11 sold Cairn India to Vedanta. Following the merger of Cairn India and Vedanta in April 2017, the UK firm's shareholding in Cairn India was replaced by a shareholding of about 5 per cent in Vedanta issued together with preference shares. In addition to attaching its shares in Vedanta, the tax department seized dividends totalling Rs 1,140 crore due to it from those shareholdings, and set off a Rs 1,590-crore tax refund against the demand. Cairn Energy in 2015 initiated an international arbitration to challenge retrospective taxation. Pending final award, the tax department sold Cairn Energy's shares in Vedanta to recover part of the tax demand. "The Indian income tax department holds Cairn UK Holdings Ltd (a direct subsidiary of Cairn Energy) as an assessee in default in respect of tax demanded on the 2006 transactions, and as such has pursued enforcement against CUHL's assets in India. "To date, these enforcement actions have included attachment of CUHL's shareholding in Vedanta Ltd and sale of 181,764,297 shares and seizure of the proceeds, seizure of the proceeds from the redemption of the preference shares, seizure of the USD 159.8 million dividends due to CUHL, and offset of a USD 222.8 million tax refund due to CUHL in respect of another matter," the statement said. To date, 99 per cent of Cairn UK Holdings Ltd's (CUHL) shareholding has been liquidated by the tax department, it said. The assessment by the tax department of principal tax due on the 2006 transactions is Rs 10,267 crore, plus applicable interest and penalties. "Interest is currently being charged on the principal at a rate of 12 per cent per annum from February 2017, although this is potentially subject to the tax department's Indian court appeal that interest should be back-dated to 2007," it said. "Penalties are currently assessed as 100 per cent of the principal tax due, although this is subject to appeal by CUHL that penalties should not be charged given the retrospective nature of the tax levied." Cairn said it has got legal advice confirming that the maximum amount that could ultimately be recovered from the company by the tax department, in excess of the assets already seized, is limited to the value of CUHL's assets, principally the remaining ordinary shares in Vedanta Ltd. "In March 2015, Cairn filed a Notice of Dispute under the UK-India Bilateral Investment Treaty in order to protect its legal position and seek restitution of the value effectively seized by the Indian income tax department (IITD) in and since January 2014. "Cairn's principal claims are that the assurance of fair and equitable treatment and protection against expropriation afforded by the treaty have been breached by the actions of the IITD, which is seeking to apply retrospective taxes to historical transactions already closely scrutinised and approved by the Government of India. The IITD has attached and seized assets to try to enforce such taxation," it said. Cairn is pleading that the effects of the tax assessment should be nullified and that the company should receive recompense from the government for the loss of value resulting from the 2014 attachment of CUHL's shares in Cairn India Ltd and the withholding of the tax refund, which together total about USD 1.4 billion, according to the statement. "The treaty proceedings formally commenced in January 2016 following an agreement between Cairn and the Republic of India on the appointment of a panel of three international arbitrators under the terms of the treaty. Cairn's statement of claim was submitted to the arbitral tribunal in June 2016 and the Republic of India submitted its statement of defence in February 2017. "Further submissions and document production took place in 2017 and 2018. The main evidentiary hearing of Cairn's claim under the Treaty took place in August 2018 in The Hague with a final hearing in December 2018. All formal hearings and submissions have now been made and the tribunal is in the process of drafting its award. The tribunal has indicated that it expects to be in a position to issue the award in the summer of 2020," it said. Based on detailed legal advice, Cairn said it remains confident that it will be successful in this arbitration and, accordingly, no provision has been made for any of the tax or penalties assessed by the IITD. It had previously stated that the arbitration panel is expected to issue a binding and internationally-enforceable award. ANZ HRS

Cairn expects arbitration award in retro tax case by this summer

Mobile handset manufacturing giant <keyword id="6354716" type="CITY" weightage="100" keywordseo="Nokia">Nokia</keyword>, which has extensive India business, has alleged that India's tax claims against the Finnish firm’s subsidiaries don't comply with its bilateral pact with <keyword id="6374076" type="COUNTRY" weightage="60" keywordseo="Finland">Finland</keyword> and has threatened to file an international arbitration in case the issue is not settled amicably. 
 “India's decision to change tax laws with retrospective effect and substantial tax claims against Nokia subsidiaries don't comply with its obligations under the <keyword id="2241526" type="UNKNOWN" weightage="100" keywordseo="India-Finland-Bilateral-Investment-Treaty">India-Finland Bilateral Investment Treaty</keyword> (BIT), and hurt the Helsinki-based firm's investments in India,” Nokia said in a letter to the Prime Minister's Office. 
 
It has now asked for negotiations under Article 9(2) of BIT to settle the tax disputes involving its manufacturing plant in Chennai. The company has also sought an appointment with the government to begin talks. In the letter, Nokia has said if an "amicable settlement" is not reached, the company has the right to "submit claims to international arbitration." 
 
"The letter seeks amicable resolution of the current tax disputes,” a Nokia spokesperson added. 
 The letter, dated April 30, was sent by the law firm Allen &amp; Overy LLP. "The Indian government has recently made certain changes to its tax legislation. In particular, in the Finance Act (2012), India retrospectively amended Section 9(1) (VI) of the <keyword id="6370810" type="UNKNOWN" weightage="60" keywordseo="Income-Tax-Act">Income Tax Act</keyword> (1961). In addition, Indian tax authorities have raised substantial tax demands against Nokia and its subsidiaries, seeking allegedly unpaid taxes, imposed freezing orders on various Nokia assets and failed to comply with various other obligations owed to Nokia's subsidiaries," the letter said. 
 
Nokia might serve the arbitration notice within three months of sending the initial letter, a source informed. 
 
"These and other measures taken by India substantially alter the legal framework for the investments that Nokia has made in India. India's actions are not in compliance with its obligations under the BIT, and they have caused serious and substantial harm to Nokia's investments," it added. 
 
India alleged Nokia had evaded taxes on software downloaded on handsets, manufactured at its Chennai unit, and demanded more than Rs 21,000 crore. 
Image: Thinkstock

Nokia May Seek International Arbitration To
Resolve Multi-billion-dollar Tax Row In India

The government today said that it is open to out-of-court settlement with <keyword id="15492" type="CITY" weightage="80" keywordseo="Vodafone">Vodafone</keyword> and Cairn on tax cases, where the arbitration process has been initiated. 
 "As far as out of court settlement for Vodafone is concerned we have always said that we are prepared to discuss with friends and colleagues in Vodafone in good faith as to whether it might be possible to get to negotiated settlement we are always open to those discussions," Minister of State for Finance <keyword id="6357677" type="PERSON" weightage="80" keywordseo="Jayant-Sinha">Jayant Sinha</keyword> said. 
 
Foreign investors like Vodafone have dragged government to arbitration over a Rs 20,000 crore tax dispute arising out of retrospective applicability of the tax law. 
 British oil explorer <keyword id="128650" type="COMPANY" weightage="80" keywordseo="Cairn-Energy">Cairn Energy</keyword> plc has also initiated a similar move over Rs 10,247 crore tax liability due to the same reason. 
 
The basic tax demand for Vodafone was Rs 7,990 crore but the total outstanding, including interest and penalty, is estimated to have risen to Rs 20,000 crore. 
 
While both the central government and Vodafone have named their arbitrators, they have not yet been able to agree on a third arbitrator to preside over the proceedings. 
 
The case relates to the retrospective amendment of the I-T laws carried out by the UPA government in 2012 to overturn the Supreme Court verdict, which had favoured Vodafone. 
 
Cairn had in April named former Bulgarian minister and lawyer Stanimir A Alexandrov as its arbitrator in the matter. India on its part has said it would soon appoint an arbitrator in the tax dispute. 
 Asked if the government is considering out-of-court settlement for Vodafone, CBDT Chairperson <keyword id="2573203" type="PERSON" weightage="80" keywordseo="Anita-Kapur">Anita Kapur</keyword> told PTI, the government is always in the favour of reducing litigation. 
 
"We will have to wait for some developments. The government is always open to reduce litigation dispute by whatever ways it is possible." 
Sinha also said that the most comprehensive efforts to reduce litigation is by elimination of exemptions and reducing corporate tax rates. 
 
"The other thing that we have underway is simplification of the tax code...so whether it is through cleaning up or streamlining exemptions, whether it is simplifying the tax code, we are absolutely trying to reduce the amount of litigation that is in the system right now," he said. 
 
"Our goal is to ensure that our tax system is fair, it's simple, it's predictable... Our endeavor with respect to all these specific cases is that we always we will attempt in all good faith to try and settle them. That remains our consistent principle for these specific cases," he added. 
 
Image credit: Indiatimes

You Searched For "retrospective tax" and got 7 results

Indian government brings in a bill to bury the infamous retrospective tax that haunted Cairn and Vodafone for nearly a decade

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Cairn Energy slapped with Rs 29, 000 crore retrospective tax

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Budget 2016 may address retrospective tax concerns, says Chief Economic Advisor Arvind Subramanian

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Nokia May Seek International Arbitration To Resolve Multi-billion-dollar Tax Row In India

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Government open to out-of-court settlement with Vodafone and Cairn on tax cases

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