India could face constitutional crisis over tax proposals

The Telegraph ^ | 3/30/2012 | Katherine Rushton

[bruinbirdman]

India could be facing a constitutional crisis, after the government proposed new legislation which would overrule the courts and tax companies for deals retrospectively.

Mobile operator Vodafone may have to pay $2.2bn of taxes on a 2007 deal which involved Indian assets, under
new government proposals

The change, announced in the annual budget, stands to torpedo foreign investment in the country and could force companies such as Vodafone, Kraft and SAB Miller to pay hundreds of billions of pounds of capital gains taxes they hadn’t banked on.

Under the proposals set out by Finance Minister Pranab Mukherjee, Indian tax authorities would be allowed to back-date claims for any deals since 1962, between overseas companies which involve assets in India.

Lloyd Blankfein, chairman and chief executive of Goldman Sachs, has reportedly savaged the rule change as an “unbelievable” move which “will hurt India's image as a place where rule of law prevails.”

The radical move comes as India's growth slows and it struggles to narrow its yawning 4.94 trillion rupee (£60.6bn) budget deficit.

It also follows a high profile victory by Vodafone against the Indian tax office, over a $2.2bn tax bill relating to the mobile operator’s 2007 acquisition of a 67pc stake in Hutchison Whampoa’s Indian mobile unit.

After a five-year legal battle, India’s Supreme Court ruled in Vodafone’s favour saying that the Indian tax office has no jurisdiction over the deal and that the tax would amount “to imposing capital punishment for capital investment”.

The Indian tax office appealed the case, but the Supreme Court ruled in Vodafone’s favour again earlier this month.

When Mr Mukherjee outlined the proposal on March 16, it was expected to leave the Supreme Court judgment intact, as the government argued that it was simply clarifying the law

[bruinbirdman]

A new low, ex post facto taxes.

India gets beat in its own tax court and decides to pass a new retroactive tax on the taxpayer.

[SunkenCiv]

Thanks bruinbirdman.

...the government proposed new legislation which would overrule the courts and tax companies for deals retrospectively.

[indianrightwinger]

This must just be a political temper tantrum. I don’t see any chance of this Government being this dumb to actually pass such a stupid law.

[webstersII]

U.S. companies that have spent billions to build factories and software development sites and call centers may find that it wasn’t nearly as cost-effective as they once thought.

It’s amazing how naive American business is. They expect thee same emphasis on contract law and equal treatment that is standard in the U.S.

[bruinbirdman]

"same emphasis on contract law "

Socialists are not big on private property or rule of law.

yitbos

[Lurker]

Never ever bet against Government stupidly or malice because you will lose far more often than not.