Retro Tax Rules On The Anvil: Sitharaman

Finance Minister Nirmala Sitharaman on Monday said the rules that will lead to the scrapping of the retrospective tax demands made on companies such as Cairn Energy Plc and Vodafone Plc will be framed soon.

Parliament earlier this month passed a bill to scrap a tax rule that gave the tax department power to go 50 years back and slap capital gains levies wherever ownership had changed hands overseas but business assets were in India. The 2012 legislation was used to levy a cumulative of Rs 1.10 lakh crore of tax on 17 entities, including UK telecom giant Vodafone.

The bill provides for the government to refund the retro tax to companies provided all legal challenges are withdrawn.

Now the rules for the same have to be framed, Sitharaman told reporters here. “Rules will have to be framed... rules will be famed soon.” The government has to refund about Rs 8,100 crore that it had collected using the retro tax law. The bulk of this, Rs 7,900 crore is to Cairn Energy alone.

While in other cases, it did not take punitive measures to recover the tax demand, the income tax department sold Cairn’’s near 10 percent shareholding in its erstwhile Indian subsidiary and also seized its dividends totaling Rs 1,140 crore and stopped tax refunds of Rs 1,590 crore.

Cairn challenged the tax demand before an international arbitration tribunal, which in December last year overturned the same and ordered the government to refund the money collected.

Vodafone too had gone a favorable arbitration award against a levy of Rs 22,100 crore tax.

In both cases, the government appealed against the awards - in Singapore court in the case of Vodafone and in The Hague in the case of Cairn. Singapore was the seat of Vodafone arbitration and the Hague was the same in the case of Cairn.

Asked if the government will withdraw the challenge to the awards after the passage of the law, Sitharaman said, “I will follow the law passed in Parliament.” “I will follow the features of the legislation. Nothing beyond that,” she said without elaborating.

Finance Minister said her ministry officials are discussing with Cairn, Vodafone the closure of retro tax cases, refund, and settlement.

“No discussions with me (have happened) so far,” she said.

The government’s refusal to honor the arbitration award had led to Cairn taking action to recover that money through a seizure of Indian assets overseas. In May, it took flag carrier Air India Ltd to a US court and last month got a French court order to seize real estate belonging to the Indian government in Paris.

Cairn will have to withdraw from those challenges to get a refund.

Some of the 17 companies that faced retrospective tax demand had moved courts and they will have to withdraw those challenges for the cases to be closed and settled.