India takes steps to abolish retroactive taxes

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Indian politics and policy updates

India has eliminated a controversial retrospective tax that has put multinational companies such as Kane Energy and Vodafone into trouble, and has taken a big step in repairing its damaged image of investment destinations.

On Thursday, the government of India’s Prime Minister Narendra Modi (Narendra Modi) submitted a bill to Parliament to repeal the 2012 tax law provisions that allow New Delhi to impose retroactive taxes on certain people. Foreign investment.

After New Delhi lost a US$2.9 billion tax battle between the Supreme Court of India and Vodafone in 2012, this controversial clause was passed by Parliament, severely damaging the country’s reputation as an attractive place to do business.

“We think this is an important moment for India to welcome investment,” Indian Finance Minister Soma Nathan TV told a local TV channel after the bill was introduced. “We are very eager to basically put the economy on a faster growth path.”

This move is because the Indian economy is being affected by the Covid-19 pandemic, and GDP growth shrank by 7.2% last year. Even before the virus hit, the economy was in a downturn, and GDP growth has slowed for eight consecutive quarters.

In recent months, the image of New Delhi has been affected by its high profile International tax war Cooperated with Cairn Energy on the 2006 corporate restructuring of the Scottish energy company before its Indian business was listed on the Mumbai Stock Exchange.

In December last year, an international arbitration tribunal ordered New Delhi to pay Kane US$1.7 billion for compensation Seized and sold 10% of Kane India’s shares due to disputed taxation.

New Delhi refused to honor the award, and Kane received an order from a French court last month to freeze assets owned by the Indian government. characteristic In Paris, as a step towards its debt collection.

Kane also filed a lawsuit in the U.S. court for the seizure of the aircraft of the state-owned airline Air India in lieu of payment, and stated that it has determined that other Indian government assets worth more than US$70 billion can be seized abroad in lieu of payment. Paid.

Changes to the Indian tax law-allowing tax refunds to Kane, albeit without interest-would allow New Delhi to say that it has settled the dispute under Indian law instead of appearing to comply with an international arbitration ruling that has long been contested by jurisdiction.

“Those cases that were earlier than the 2012 amendment will now be out of trouble, but we did so in accordance with Indian law,” Soma Nathan said.

“There is a principle here-this is done through Indian regulations. We continue to claim that we have the right to tax, but we choose to do so. We do not accept these arbitration awards. We are opposed to adjudicating such disputes outside India.”

Kane stated that he has “noted” the proposed legislation and is “monitoring the situation.” Cairn’s share price once soared 47%, then fell slightly, closing at 160 pence per share, up 27.4% on the day.

Tax experts welcomed the move, but questioned why the ruling Bharatiya Janata Party has waited so long. When the previous National Congress government introduced this retrospective tax law in 2012, the BJP violently criticized the law and described it as “tax terrorism”.

Nigam Nuggehalli, Director of Registrar of Bangalore National Law School, said: “It should have been completed not long ago. This is definitely the right decision and it sends the right signal to investors.”

Nuggehalli said: “I am sure that the immediate stimulus for them is that they lost the arbitration against Vodafone and Kane,” Nuggehalli said. “No compromise on this matter will really shame them. [the government]. ”

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