The
Government’s attempt to change its tax laws in order to slap a $ 2 billion tax
bill on Vodafone for its roughly $ 11.1 billion purchase of Hutch Essar in
2007, is meeting with stiff resistance from powerful US investors. Claiming
that the move has killed investment appetite in India, US investors have
written to the Finance Minister Pranab Mukherjee, asking for a review of the
Revenue authorities decision to tax cross-border investments with
retrospective tax legislation enacted in 2008.
The strongly
worded letter, expressing concerns about India’s investment climate has also
been sent to principal secretary to PM, T. K. A. Nair, Cabinet Secretary K. M.
Chandrasekhar, Deputy Chairman, Planning Commission, Montek Singh Ahluwalia
and the Commerce Ministry. The letter has been written by the National Foreign
Trade Council (NFTC), an association of 300 US business enterprises engaged in
all aspects of international trade and investment.
According to
the NFTC, any necessary changes made to the laws should be with prospective
effect only, rather than through retrospective changes in interpretation of
current law or application of withholding tax provisions.
The NFTC
warns that the move “creates an impression among foreign investors that
investing in India brings with it a significant risk of tax liabilities
arising from unforeseen new interpretations of tax laws and retrospective tax
changes’’. ‘‘Our members will have limited funds to invest overseas and this
new interpretation may cause several of them to reconsider investing in India,
looking instead to other countries which have not taken this position and
which act in a perceived less arbitrary manner in taxing foreign investors,’’
it added.
Pointing out
that US-based MNCs have a history of robust investment in India, NFTC said ‘‘
Indian Revenue authorities have begun to argue that India is entitled to tax
certain capital gains on global M&As taking place outside of India.’’
(Source :
Internet & Media Reports, 8-8-2009)
