or time which the arrangements had existed...” (Mind that in the Vodafone case, the corporate structure that allowed London-headquartered telecom firm and Hong Kong-based Hutchison to clinch the deal that created Vodafone Essar in India had existed much before the 2007 transaction and the Supreme Court had stressed this while negating India's tax jurisdiction over the deal). This means that in future Vodafone-like cases, one of the criteria for deciding the taxability in India would be how long the arrangement had preexisted.
Chidambaram's statement on Monday, however, did not dwell on the other aspect the Shome committee had looked into – namely, retrospective amendments including that on taxation of cross-border transactions with underlying Indian assets. While Vodafone has received a fresh tax demand from tax authorities under the retrospective amendment that overturned the SC judgement, the tax authorities have scheduled a meeting with the firm this week.
Mukesh Butani, chairman, BMR Advisors said: “Several path-breaking changes proposed to the law could mean significant dilution of the 2012 budget proposals. Appropriate provisions have been made for initiating GAAR proceedings by way of show cause notice (to be issued by the taxman) and a reasonable opportunity to the tax payer. This means due process of law coupled with justness and fairness. He added: “The panel for evoking GAAR shall include representatives from the ministry of law and individuals having knowledge of business accounting and commerce. This will bring some degree of independence. Similarly, GAAR shall apply only to that part of arrangements which is classified as impermissible. GAAR and Specific Avoidance Provision shall not apply simultaneously.”
Sunil Kapadia, tax partner, Ernst & Young said: “Investors often come together for reasons other than tax avoidance to benefit from being under a common jurisdiction. GAAR will need to be carefully applied in such cases.”