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India is unlikely to relent to the European Union’s pressure against retrospective taxation on Vodafone-Hutch type deals. It is unlikely to ease the proposed local content requirements in the telecom manufacturing policy.
Recently, the EU Ambassador to India, Dr Joao Cravinho, said EU continues to be concerned about India’s proposed move to retrospectively tax overseas transactions similar to the Vodafone-Hutch deal (involving underlying Indian assets).
During official talks with the EU in Brussels during June 25-26, India would indicate that it can still make a fresh notice/demand on Vodafone regarding the deal, official sources told Business Line . The Indian side is being led by the Union Commerce and Industry Minister, Mr Anand Sharma.
India would state that the proposal of retrospective taxation in the Finance Bill, 2012, is only a clarification and does not amount to a substantive adverse amendment.
New Delhi would point out that the proposal is akin to the UK’s Finance Act, 2008, where existing provisions were retrospectively amended with effect from 1987 to prevent similar schemes of tax avoidance using entities located in tax havens.
No FDI inflow
India would also show that there was no Foreign Direct Investment inflow into India in the Vodafone-Hutch deal and that the payments were made by a non-resident to another to acquire assets in India.
The sources said a validation clause along with the ‘clarification’ proposals in the Finance Bill will ensure that Vodafone will have to pay taxes in India despite the Supreme Court decision in favour of the company.
Besides, certain provisions relating to the General Anti Avoidance Rules are also being amended to overcome certain observations of the apex court for preventing tax avoidance.
Dr Cravinho had said the EU and the European companies directly or indirectly affected by the issue are in discussions with the Indian Government.
LOCAL CONTENT NORMS
He had also termed as “protectionist” the proposed preferential treatment to domestic manufacturers in India’s telecom equipment manufacturing policy.
On this, India would inform the EU that the local content requirements — including in the telecom policy, National Solar Mission and the National Manufacturing Policy — are in line with India’s international obligations and are compliant with the World Trade Organisation norms.
EU had raised the local content norm in the telecom policy with the Centre claiming that it may not be WTO-compliant. The proposed move could hurt European manufacturers such as Ericsson, Nokia Siemens and Alcatel-Lucent. Telecom Ministry is not in favour of removing the norm.
On the retrospective taxation issue, Dr Cravinho said the matter is also being looked at from the India-EU Free Trade Agreement perspective as the FTA would have a chapter on investment protection.
Pointing out that several EU member countries had separately entered into bilateral investment promotion and protection agreement with India, he said these have to be harmonised without damaging any individual member country’s interests.
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