India can be top investment destination post Vodafone order

In a landmark judgement today, the Supreme Court ruled in favour of Vodafone and said that the tax department had no authority to tax a deal done by two foreign authorities. The SC has also ordered the IT department to refund Vodafone Rs 2,500 crore with 4% interest.

“If this judgment is accepted by the government, then India will become a fantastic investment destination and I think the country will stand to gain to a very substantial extent,” said corporate tax lawyer HP Ranina. Hitesh Jain, senior lawyer at the Supreme Court agrees, adding that “this will send a right message to the world at large who are looking to invest in India.”

Dinesh Kanabar, deputy chief executive and chairman of tax for KPMG and Sandeep Ladda, tax partner at PwC India also believe this ruling sends a good message to the world.

Below is an edited transcript of their interview with Menaka Doshi. Also watch the accompanying videos.

Q: What do you think the reactions are going to be from the international M&A community, the corporate community as well as the international revenue community, because let us not forget revenue every where in the world is becoming more aggressive? What do you make of the dual reactions we are going to get?

Ranina: The reactions will be wonderful as far as the international investing community is concerned, but it will also have an impact on other foreign governments and how they look at this jdgement, because I think that is where this judgement will really be a landmark judgment, not only nationally but internationally.

I would like to congratulate Harish Salve for the wonderful work that he has done in this regard. We have to now wait and watch whether this will be accepted by the government in view of international repercussions in order to make India a good investment destination. If this judgment is accepted by the government, then India will become a fantastic investment destination and I think the country will stand to gain to a very substantial extent. So I think it is a great judgment and we really have to see how the government takes it in the right spirit; if it takes it in the right spirit, then I think it is good for our country.

Q: How do you see this squaring with revenue across the world?

Kanabar: If you step back and reflect, China introduced a circular in terms of which overseas transactions with value in China were taxable, but that was prospective. I think India as a country has a right to tax transactions, including such overseas transactions which have value in India, but what would be right and appropriate to do so prospectively rather than retrospectively. In a sense, when the current income tax law was interpreted over the decades that it did not tax indirect transfers, the attempt to tax the Vodafone-Hutch transaction was so to say retrospective.

It is for that reason I say that revenue was trying out Vodafone as test case. The Supreme Court has come back and said that at the end of the day you have to interpret the law for what it says and that you cannot enhance the ambit just because it is better for you from a larger revenue perspective. UK has certain transactions which are overseas and taxable and even Australia has some similar provisions. India would be very welcome to put something similar, whether it’s in the DTC or whether it is in the forthcoming budget. So long as it is prospective, people will walk into the country with their eyes open.

When you try and interpret the law in a different manner, you are probably subjecting people to a liability which they had not budgeted which creates uncertainty. I am very confident that the revenue will look at it in that perspective and sort of want to say let the bygones be bygones and see what we can do prospectively.

Q: For those cases that are already under scrutiny, how do you think this judgment will weigh on those decisions?

Jain: This decision is going to have a significant impact on those judgments, particularly if there is a genuine structuring which has been upheld in the summary of the judgment. Unless the legislation puts it otherwise, I think this is going to have a huge impact on all those cases.

Also, tax authorities will change and look at those transactions which have been waiting in the cold storage in the scrutiny stage in a different way. So this will send a right message to the world at large who are looking to invest in India.