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International business attacks retrospective Indian tax lawThe international business community has launched a stinging attack against the Indian government and its decision to introduce a retrospective a tax law. |
By Jonathan Russell
10:00PM BST 01 Apr 2012
The changes, which could crystallise a £1.4bn tax charge for Vodafone, threaten an exodus of international investment from India according to some of the world’s most powerful trade bodies.
A letter to Indian Prime Minister Manmohan Singh from organisations such as the CBI, the US National Foreign Trade Council and Japan Foreign Trade Council warns the changes have “called into question the very rule of law, due process, and fair treatment in India.”
The letter comes as the Chancellor George Osborne’s begins a visit to India. He is expected to raise the tax issue with ministers.
“We are writing to express deep concerns about many of the tax provisions proposed in the Finance Bill 2012,” the letter states. “If enacted, these proposals will significantly alter the Indian taxation of our member companies with retroactive effect extending back for as much as half a century.
“Some of our member companies had already begun re-evaluating their investments in India due to increasing levels of controversy and uncertainty regarding taxation.”
The letter has elevated the tax issue from a bi-lateral dispute between Vodafone and the Indian government to a multilateral row that could end up in the international courts.
As well as Vodafone, companies such as SAB Miller and Kraft are among those that have carried out deals involving Indian companies which could fall foul of the revised law.
The Indian Finance Bill introduced a measure that means deals involving Indian companies dating back to the 1960s could be taxed, irrespective of where the deals were carried out. India is currently struggling to close a 4.94 trillion rupee (£60.6bn) budget deficit.
Vodafone has been fighting to overturn a £1.4bn tax claim arising from its 2007acquisition of Hutchinson Whampoa’s Indian business.
Indian courts have twice ruled in Vodafone’s favour, most recently at the Supreme Court.
The letter to Mr Singh states: “The sudden and unprecedented move in the bill has undermined confidence in the policies of the government of India toward foreign investment and taxation and has called into question the very rule of law, due process, and fair treatment in India.
“Although presented as clarifications, these changes are seen as in clear reaction and contradiction to a long series of recent rulings and judgements rendered by Indian tribunals.”
The letter was signed by Business Roundtable, Canadian Manufacturers & Exporters, Capital Markets Tax Committee of Asia, Confederation of British Industry, Japan Foreign Trade Council, National Foreign Trade Council, United States Council for International Business.