Vodafone tax win: End of terror times?

Here is a story of a British company in India. Vodafone. The firm is taxed for buying into an Indian company, while transacting abroad. The country’s highest court rules in the company’s favor as the deal abides by the laws. The government amends laws to make it suitable to tax Vodafone, and creates a law which will allow it to tax transactions done before the law came into place!

This is one part of the story. A few years later, Vodafone’s Pune outsourcing unit was one in the many which received tax notices for issuing shares to an international unit. A share sale and the resulting income can be taxed. Vodafone argued that it was a share issuance and hence, does not fall under the ambit. Bombay High Court bought this argument. This is after the Supreme Court had already declared that Vodafone did not fall under the ambit of transfer pricing laws which govern international transactions within a company. 

Many would take Vodafone’s win with a yawn and a lazy hand wave. It is not the first time it has won in courts, yet its problems are far from over. After each win, there is an incessant appeal system by the tax authorities, which has demonstrated they will go to any lengths. 

On its part, Vodafone got bilateral tax treaties into the picture which are worded to avoid double taxation. The British Finance Minister met his Indian counterpart to oppose retrospective taxation laws. The Britain-based telecom major also appealed at many international forums against the unfairness of taxing them retrospectively. The department did not swerve. 

This time around however, there might be a change in the authorities of attitude, of getting as many as possible into the tax ambit, backed probably by aggressive targets. Businesses have long since been bitter about the tax authorities looking for any possible gap in activities to tax them, and in many cases, conjuring such when they could not find them. Some others who have been brought under transfer pricing ambit are Royal Dutch, Shell,Nokia and IBM. The staggering size of the claims threaten the very existence of these businesses in the country. 

The new regime which came into place with promises of easing roadblocks to do business in India, seems to have a different view. Finance Minister Arun Jaitley offered relief to foreign institutional investors (FIIs) by exempting security transactions and interest from Minimum Alternate Tax, with riders attached. MAT too escalated to 20% in the last few years, causing FIIs to flee the country at an alarming rate, which is no surprise. 

Though Jaitley had delegated Vodafone tax files to his juniors, the bets are against him ruthlessly executing the retrospective laws on this company as well as others. 
The idiom is right. We cannot fight the City Hall, but if the City Hall itself decides to go easy, it is victory enough.