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Rediff.com  » Business » FM faces US chill: Business forums express concern

FM faces US chill: Business forums express concern

Last updated on: April 19, 2012 10:19 IST

FM faces US chill: Business forums express concern

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BS Reporter in New Delhi

The weather in Washington is balmy, but Finance Minister Pranab Mukherjee, in the US to attend a meeting of the International Monetary Fund and the World Bank, would feel a distinct chill as he readies to meet corporate America.

A total of 12 influential business associations, including the powerful US India Business Council that sang hosannas to the Indian political leadership in happier times, have written to US Treasury Secretary Tim Geithner, saying he should tell India off for the recent tax amendments in the Indian Finance Bill 2012.

They also warned if India didn't do something about taxing companies retrospectively, there would be no more foreign direct investment flows into the country.

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Image: Pranab Mukherjee
Photographs: Reuters

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FM faces US chill: Business forums express concern

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"The proposals, which include an unprecedented period of retroactive tax collection, a broad and unclear General Anti-Avoidance Rule and an onerous tax on indirect stock transfer, are inconsistent with international tax policy and standards and result in significant erosion of the rule of law," read the letter to Geithner.

It also asked him to raise these concerns at the IMF-World Bank meeting. Mukherjee is scheduled to meet Geithner on Thursday.

The organisations concede every nation has the right to make its own laws. However, these raise several industry-specific concerns: The inappropriate expansion of the definition of royalties for computer software and for transmission by satellite, and the lack of clarity on participatory notes.

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Photographs: Reuters

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Charging the Finance Bill 2012, as it is framed today, would, through two dozen amendments, retroactively create tax liabilities, some for up to 50 years, the organisations say these are not convinced these changes would be benign.

"Despite assertions by Indian officials that these retroactive provisions are in accordance with global tax practices, the amendments are much broader in scope and extend for a far longer period of time," the letter says.

It adds the Finance Bill amendments are inconsistent with India's specific obligations to the US under the current bilateral tax treaty.

It also expresses reservations on the GAAR because it overrides current treaty provisions and places the burden of proof on individual companies, not on Indian tax authorities, to prove they are in compliance with the GAAR.

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Image: Employees at a wholesale shop count money in Allahabad.
Photographs: Jitendra Prakash/Reuters

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On the Supreme Court's judgment on the Vodafone case, the letter says the amendments, taxing a non-resident's transfer of shares in a non-Indian company if the stock directly or indirectly derives its value "substantially" from Indian assets, violates the court order.

"In this case, the value of assets derived substantially from India should be clarified to avoid unnecessary disputes and litigation.

"More importantly, the amendments would retroactively take effect from April 1, 1962, more than fifty years ago.

"The unprecedented nature of this amendment sets a particularly poor precedent and, consequently, we believe it essential that the US Treasury speak out so that other countries might be dissuaded from enacting similar policies," the letter urges.

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Image: Finance Minister Pranab Mukherjee arrives at the parliament to present the Budget.
Photographs: B mathur/Reuters

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It says the implementation of the amended Finance Bill 2012 would have "immediate and severe consequences for companies, affecting their willingness to commence or continue their operations in India".

"India is identified as a priority country, under the President's 2010 National Export Initiative.

"Failing to address this proposal would undercut the administration's goals of increasing exports and job creation," the letter says, reviewing India's protectionist apprehensions vis-a-vis the US.


Photographs: Bobby Yip/Reuters
Tags: India , US , OIndia

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