Budget 2012: Cross-border M&A rules to hit aggressive tax planning

Budget 2012: Cross-border M&A rules to hit aggressive tax planning

Last Updated: Sunday, March 18, 2012, 18:26
Comments 0  
Budget 2012: Cross-border M&A rules to hit aggressive tax planning New Delhi: Retrospective amendment on taxing cross-border M&As, as proposed by the Budget 2012-13, has startled taxation experts who said it is a signal to companies to desist from aggressive tax planning.

Some experts said, however, that the constitutional validity of such a move may be questioned.

While most amendments announced in the Budget were anticipated, retrospective amendments to address Vodafone-like M&As was a startling one, they said.

The Finance Ministry's decision to amend the Income Tax Act with retrospective effect from 1962 aims at bringing into net overseas deals concerning domestic assets.

The amendments, once carried out, will have implications on Vodafone which won Rs 11,000-crore tax dispute case against tax authorities in the Supreme Court.

The government had slapped tax on UK-based Vodafone, which had bought Hong Kong-based Hutchison's telecom business that included India assets, but lost the case.

The amendments will impact other similar cases involving taxes to the tune of about Rs 30,000 crore.

"The amendments made to Sec 2(14), Sec 2(47) and Sec 9 to counter Vodafone and similar transactions was anticipated but a retrospective amendment is surprising. We suspect that the constitutional validity of such an amendment will be questioned," Walker Chandiok & Co Partner & Practice Leader, Tax and Regulatory Services, Pallavi Bakhru said.

Deloitte Haskins and Sells Partner Vipul Jhaveri said the conviction of the Government's intent to check the application of Supreme Court decision in Vodafone’s case to similar transactions is clear.

It is a signal to investors to desist from aggressive tax planning, he said.

"One of the most significant amendments regarding taxability of cross-border M&A transaction involving indirect transfer of share or interest in an Indian company is sought to be laid to rest," Jhaveri said.

He further noted, "In cross-border M&A one will have to watch out for the tool box of counter measures for tax avoidance in respect of transactions with persons located in notified jurisdictions that do not effectively exchange
information with India."

Experts also said that several policy, regulatory and procedural changes announced by Finance Minister Pranab Mukherjee will attract fresh investments and infrastructure and industrial sectors are likely to witness more buy-outs and consolidation.

The government has also proposed removing the sectoral restriction on venture capital funds, a move that will allow more startups beyond the current nine sectors to get access to growth-stage capital.

As per section 10(23FB) of the Income Tax Act, 1961, SEBI registered venture capital funds are eligible to invest in firms engaged in only nine sectors such as nanotechnology, IT and pharma.

First Published: Sunday, March 18, 2012, 18:26
Post Your Comment
 Your comment(s) on this article
The views represented here are not neccesarily endorsed by www.zeenews.com and its allied websites. All messages will be moderated and no message that has inflammatory, abusive, derogatory language or any language deemed unfit for publication by the editor will be displayed. Though it will be endeavoured that as many messages as possible be displayed, there will be time lag between the submission and publication of the messages. The website reserves the right to publish or reject any message.

latest videos  
Q&A With fm Read More »
Budget will provide breather to aam aadmi: Pranab

FM expressed confidence that the policy road map prescribed in the Budget will steer the course of the economy.

opinion poll
Will the Budget be able to solve India`s deficit woes?
zee exclusive Read More »
A survivor’s Budget, at best!

As Pranab Mukherjee read out his Budget speech the politician in him was right up front.

Education not a priority in the Budget 2012-13 Union Budget 2012: What does it offer to women?
Food security still a distant dream Measly spending on major social sectors
Budget Plus