Govt introduces bill to scrap retrospective tax law; to withdraw tax claims on Vodafone, Cairn
09 August 2021
The Narendra Modi government on Thursday introduced a bill in the Lok Sabha to amend the Income Tax Act by scrapping the controversial retrospective tax law that led to the row over tax demands on foreign investors such as Vodafone Group and Cairn Energy Plc of the UK.
Finance minister Nirmala Sitharaman introduced The Taxation Laws (Amendment) Bill, 2021 in the Lok Sabha. The bill seeks to withdraw tax demands made on indirect transfer of Indian assets prior to 28 May 2012.
The bill provides 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 28 May 2012.
Further, the bill says, "the demand raised for indirect transfer of Indian assets made before 28 May 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."
Earlier, India had lost the retrospective tax demand case against Vodafone and in December last year, filed an appeal. In September, an international arbitration tribunal in The Hague ruled that India's imposition of tax liability on Vodafone, as well as interest and penalties, breached an investment treaty agreement between India and the Netherlands.
The long delayed decision will pave the way for the government to settle billions of dollars in international disputes.
At least 17 companies, including British oil and gas major Cairn Energy, and the telecom giant Vodafone, will benefit from the ruling.
"Prime Minister Modi inherited this bad legislation, and today we are delighted to see he has finally decided to nullify it," said Mukesh Aghi, CEO and President of The US-India Strategic Partnership Forum.
He called the law a "black mark" on India's reputation as a predictable investment destination.
Tax demands on companies will be nullified under the condition that they withdraw litigation against the government and undertake not to claim interest or damages.
The bill also proposes to refund any principal tax amount they might have paid.
The decision come at a time when the Modi government is engaged in a legal wrangle with Cairn Energy and Vodafone in international arbitration tribunals.
In the case of Vodafone, the tribunal in The Hague ruled against the government's $2bn tax claim. Cairn on the other hand was awarded damages worth $1.2bn plus costs and interest.