FM's message to MNCs, no rethink on Vodafone tax

New Delhi, May 9: In a strong message to multinationals campaign against taxing Vodafone, Government on Tuesday ruled out any rethinking on the issue making it clear that India cannot be a tax haven just to attract foreign investment.

It also asserted that Parliament has the right to make amendments to law to correct Supreme Court judgement and would not allow a situation where a corporate would avoid paying tax here by operating from a tax haven.

"I would like to be guided either by Double Taxation Avoidance Agreement (DTAA) or tax. There cannot be a situation that somebody will make money on an asset located in India and will not pay tax either in India or to the country of its origin... because of making some arrangements through certain tax haven areas through a complicated setting up of series of subsidiaries and having huge capital gains on the assets located in India," Finance Minister Pranab Mukherjee said in a forthright assertion of the proposal to make a retrospective amendment to tax Vodafone-type deals.

In an hour-long speech in reply to the debate in the Lok Sabha on the Finance Bill, he said taxing Vodafone is about combating black money menace and referred to the Supreme Court judgement which had held that the British telecom major was not liable to pay tax on its acquisition of Hutchison stake in Hutchison Essar in 2007. The Bill was later passed.

Ever since the Budget proposed to amend the Income Tax Act with retrospective effect to tax Vodafone-type deals, international business and domestic industry have been a campaign against such a move saying it would hurt foreign investment.

Referring to questions as to how the Government could go against the Supreme Court judgement, Mukherjee said, "I am fully aware of my right as a legislature, law making power only vests in Parliament.

"The Supreme Court may interpret the law but equally Parliament has right - legislative right - to express its intention by making an amendment to correct the SC judgement."

He said the very first amendment of the Constitution of India arose out of the judgement of Supreme Court in 1956.

However, he added, that the government in the past had not amended the Constitution when the Supreme Court gave judgements in the Golaknath case or the Kesavananda Bharti case when it was held the fundamental rights cannot be abridged or the basic structure of the Constitution cannot be amended.

The Minister said the Constitution has given the judiciary the power to interpret, but the law is to be framed by Parliament while amending it or asserting Parliament's right is not taken away.

Explaining the purpose of the amendment in the wake of the Vodafone verdict, he said, tax liability will arise retrospectively six years before the date of the asset.

He also reiterated his yesterday's clarification that assessments which have been closed would not be reopened.

Referring to the British tax amendment of a similar nature in 2008, which gave effect from 1987, Mukherjee asserted that "if they are entitled, then surely India is equally entitled. India is not an inferior country compared to anyone."

The Finance Minister referred to high domestic savings rate and said the country was not in such a "desperate situation" to attract foreign investment.

"We cannot declare India a tax haven simply to attract foreign investment. Please remember, when the investment was also not there we did not eat lizard. Till today, the investment required is substantially met by our rate of domestic savings.

"Therefore, we are not in that desperate a situation that a country of 120 crore people will be treated as a tax haven like Cayman Islands, Isle of Mann or Virgin Island. We cannot be equated with them. Either pay tax here or you pay tax in your own country with which we have DTAA," he said.

Referring to the deferring of the General Anti-Avoidance Rules (GAAR) by one year, the Minister said he had agreed to it not because of any fear or apprehension and was not afraid of any consequences.

Responding to BJP leader LK Advani's queries on disclosing names of those who had stashed black money abroad, Mukherjee said, the government would disclose them only when prosecution is launched by tax authorities.

Promising to table a White Paper on black money by the end of the current session, the Minister said, three institutions were assessing the estimates of such funds and reports are expected by July-August.


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