Retro tax may spare deals if India assets are not significant

In what will come as major relief to foreign investors, the government is likely to spare most foreign merger and acquisition deals from the dreaded ‘Vodafone tax’ if the Indian assets transferred under the deal account for less than half the deal size.

According to an _Economic Time_s report, the government may only tax those transactions where Indian assets make up 50 percent or more of the total assets being transferred via sale. The ‘Voda tax’ is basically a retrospective tax amendment the government plans to introduce to tax past overseas transactions involving the transfer of Indian assets. Vodafone is expected to be the first victim of this tax, hence the nickname.

[caption id=“attachment_331073” align=“alignleft” width=“380” caption="‘Voda tax’ is basically a retrospective tax amendment the government plans to introduce to tax past overseas transactions involving the transfer of Indian assets."] [/caption]

Investors have been on edge ever Mukherjee decided to introduce the General Anti Avoidance Rules, and the retrospective tax proposal. Various media reports have said the government is likely to demand up to Rs 40,000 crore in taxes in up to 20 such cases, more than half of which will come from Vodafone alone.

The amendment, which has set the stage for a fresh demand on Vodafone, has been criticised by domestic and international companies although the government has held firm.

As an earlier Firstpost story noted, “while the government claims it is only pursuing what it believes are justified tax claims on deals involving Indian assets, there’s little doubt that the controversial tax proposal will only further muddy the investment climate in India.”

However, last week, finance minister Pranab Mukherjee also said the income tax department would not reopen cases where assessment proceedings had been finalised before April 2012.