Taxman giving MNCs the jitters gets the axe

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SummaryWhile finance minister P Chidambaram was telling investors in the US about his plans to make life easier for them, his officials in Delhi quietly axed a key tax official

While finance minister P Chidambaram was telling investors in the US about his plans to make life easier for them, his officials in Delhi quietly axed a key tax official widely seen as making life difficult for MNCs through transfer pricing orders among a host of others issued on companies like Microsoft and Shell.

The order from the Central Board of Direct Taxes (CBDT) transferring SK Mishra, then joint secretary in charge of the foreign tax division was issued on July 10, two days after Chidambaram left for the US. Not only was Mishra transferred suddenly — he had 18 months left in his current stint — he was transferred without having an alternative posting. Mishra’s next posting will be decided by the Board later.

Akhilesh Ranjan, currently posted in the department’s investigation arm in Mumbai, and a former director in the foreign tax division, succeeds Mishra.

Mishra shot into the limelight under the previous finance minister and was widely seen as the brain behind the retrospective amendments to tackle the Vodafone tax case and also General Ant-Avoidance Rules (GAAR), which spooked foreign investors. Mishra was also a member of the committee on foreign tax credits which recommended a dramatic tightening in the manner in which such credits were given.

Though talk of his removal from the foreign taxation department has been in the air since Chidambaram took over a year ago, Mishra continued in the critical job. During this period, transfer pricing adjustments on MNCs jumped from R44,500 crore in FY12 to R70,000 crore in FY13. In the case of Microsoft, the taxman even came up with a novel argument to see how part of Microsoft’s global income could be added on to the Indian arm’s incomes. This was done by arguing that since a portion of the US firm’s research and development was done in India, and the R&D was a big contributor to the global profits, a part of the global profits could be said to have accrued to the Indian arm.

Two weeks ago, based on the Rangachary report, the finance ministry issued a clarification on how the taxman was to deal with foreign R&D centres of MNCs, signalling the first major shift in the government’s stance towards MNCs investing in India.

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