India’s finance ministry has asked tax officials to apply the principle behind a recent court ruling in favour of the UK-based Vodafone Group to all relevant future cases involving foreign companies.
The order, sent to tax officials nationwide, came a…
India’s finance ministry has asked tax officials to apply the principle behind a recent court ruling in favour of the UK-based Vodafone Group to all relevant future cases involving foreign companies.
The order, sent to tax officials nationwide, came a day after the government said it would not appeal an October Bombay High Court decision which rejected claims on the taxability of share capital for foreign companies, according to multiple reports.
Atul Dua, a senior partner with Seth Dua & Associates in New Delhi, explained: “The court ruled that when a foreign holding company invests in an Indian subsidiary, such infusion cannot be treated as a taxable transaction under Indian transfer pricing regulations.”
It therefore gives foreign companies “a certain degree” of freedom to price their investments in India without being taxed on capital by the Indian Revenue, he said.
Dua described the ruling as a “welcome move” for Vodafone, the wider telecoms sector and industry in general.
“One only hopes that this is the beginning of a truly non-adversarial tax regime, and a regime which provides certainty to foreign investors,” he said.
Dua added that his team expects the upcoming Indian budget to include further measures to boost industry in general.
Telecoms minister Ravi Shankar Prasad was quoted on Wednesday as saying that cabinet’s decision not to appeal the October Bombay court decision sends a message to investors worldwide that its decisions will be “fair, transparent and within the four corners of the law”.
Vodafone is one of multiple foreign companies to have faced accusations by Indian authorities of underpaying taxes in the 2011/12 financial year after selling shares to overseas arms too cheaply.
The operator has been involved in multiple tax disputes in the country.