Shome panel bails out Vodafone; recommends against retrospective tax

The Parthasarathi Shome committee has recommended prospective application of the proposed retrospective tax on indirect transfers, instead of retrospectively, helping Britain's Vodafone save a whopping $2 billion in taxes.

The committee said retrospective application of tax law should
occur in exceptional or rarest of rare cases, and with particular objectives.

These should be either to correct apparent mistakes/anomalies in the statute, to apply to matters that are genuinely clarificatory in nature, ie, to remove technical defects, particularly in procedure, which have vitiated the substantive law or to ''protect'' the tax base from highly abusive tax planning schemes that have the main purpose of avoiding tax, without economic substance.

In any case, tax with retrospective effect should not be used to ''expand'' the tax base. Moreover, retrospective application of a tax law should occur only after exhaustive and transparent consultations with stakeholders who would be affected.

The committee has recommended that the provisions relating to taxation of indirect transfer as introduced by the Finance Act, 2012, after introducing clear definitions, should be applied prospectively.

Prime Minister Manmohan Singh set up the panel to look at a series of tax measures introduced this year that were against business interests of global business groups and dampened investor sentiment in India.