Govt to amend law to tax Vodafone-type deals

NEW DELHI, INDIA: The Indian government on Friday proposed to amend the Income Tax Act to tax all overseas transactions involving domestic assets.

The proposed change would be retroactive to April 1, 1962, according to the 2012-13 budget documents tabled by Finance Minister Pranab Mukherjee.

Also read: Vodafone wins multi-crore tax case

Under the amendment, resident and non-resident companies alike would be required to deduct tax and pay it to the Indian government if a merger involved an Indian asset even if the transaction was carried out on foreign soil.

The proposal follows a Rs.11,218 crore ($2.2 billion) tax dispute case the government lost in the Supreme Court against British mobile phone firm Vodafone Plc in January.

In response, the telecom service provider said it has faith in the Indian judicial system and is confident that the change in tax law would not have any impact on the Supreme Court's verdict.

"We are examining this proposed decision with our lawyers, but we do not believe this retrospective change in tax law should have any impact on the final judgment handed down by the Supreme Court in our tax case," Vodafone said in a statement.

Also read: Vodafone welcomes courts decision in tax case

"We continue to have faith in the Indian judicial system," it added.

The case involved a levy on a 2007 transaction in which Vodafone had paid $11.2 billion to Hong Kong-based Hutchison for acquiring a 67-percent stake in Indian telecom services major Hutch Essar.

The Supreme Court had ruled in favour of Vodafone saying that Indian tax officials did not have jurisdiction over a deal between two global companies even if assets involved in that deal were located in India.

If the amendment is carried out, experts said, several foreign investments would be open to taxation.