1. At G20 talks, India to come out strongly against ‘mandatory’ arbitration for tax

At G20 talks, India to come out strongly against ‘mandatory’ arbitration for tax

India's stand becomes important in wake of ongoing international arbitration that Vodafone has initiated with the Indian tax authorities.

By: | New Delhi | Published: November 13, 2014 8:03 AM
At G20 Summit, India will also pitch for taxing digital economy and e-commerce firms which are increasingly mushrooming in the country. (PTI)

At G20 Summit, India will also pitch for taxing digital economy and e-commerce firms which are increasingly mushrooming in the country. (PTI)

Tax disputes arising out of cross-border transactions should not be “mandatorily” dragged to international arbitration and India will voice its opposition on the same in the upcoming G-20 leaders’ summit, a senior official told The Indian Express ahead of the Summit that starts on Novermber 15.

This is a part of the suggestions of the G20-OECD initiative for dispute resolution mechanism, proposed in, what is being called Base Erosion and Profit Shifting (BEPS). BEPS will essentially provide countries with domestic and international instruments that will better align rights to tax with economic activity.

“We will never agree to it, tax is a sovereign issue. Agreeing to this will mean several more Vodafone-like cases for us. This issue will be taken up at the Sherpa-level talks,” the official said. Sherpa is a senior official responsible for preparing the agenda for leaders attending the summit.

India’s stand becomes important in wake of the ongoing international arbitration that British telecom major Vodafone, facing a tax liability of Rs 11,200 crore for acquiring Hutchison Whampoa’s stake in its Indian telecom business in 2007, has initiated with the Indian tax authorities.

Also, last year, Finland-based Nokia, now a division of Microsoft, entangled in a protracted tax case with income tax authorities, had also expressed its intention to seek arbitration under the Bilateral Investment Protection Agreement (BIPA) India has signed with Finland. Further, India will also pitch for taxing digital economy and e-commerce firms which are increasingly mushrooming in the country.

Countries across the globe are facing the problem of taxing such companies which make use of low-tax jurisdictions causing revenue loss to the countries where they are actually based.

“We will raise the issue of defining ‘significant digital presence’ which may include the number of bytes used, number of users or the value addition done in a country. While countries like the US are still not in favour of such a suggestion, we hope to bring every one on board on the issue,” the official said.

Earlier, railway minister Suresh Prabhu, who is Sherpa of Prime Minister Narendra Modi for the Summit, had said that while the principles for BEPS have been laid down and more or less agreed upon by the countries, there was a need to go beyond and look at the possibility of transactions taking place in e-commerce.

“E-commerce happens in one country, the person who manages the logistics could be in another country, the manufacturer of the product could be in yet another country while the consumer could be in a different country. So where do you tax such a transaction? It is issues like this which really need a global consensus,” he said.

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