Mukherjee likely to get an earful about Vodafone during US visit

New York: Finance Minister Pranab Mukherjee who is visiting Washington this week for the semiannual meetings of the International Monetary Fund and World Bank will need a thick skin to survive the global power capital. He should be prepared to hear nothing but complaints about his new retrospective tax proposals that have led foreign businesses to practically reconsider their investments in India. US business groups of all stripes are urging US Treasury Secretary Timothy Geithner to raise their concerns over the issue with Mukherjee. US companies are up in arms against Mukherjee’s budget proposal that would allow the government to tax transactions dating to 1962 in which two foreign firms exchange an Indian asset. Mukherjee slipped a provision into the Finance Bill that would allow Indian tax authorities to make retroactive claims on overseas corporate deals and bring in new anti-avoidance measures. [caption id=“attachment_280302” align=“alignleft” width=“380” caption=“He should be prepared to hear nothing but complaints . PTI”]  [/caption] “The Finance Bill 2012 includes two dozen amendments that would retroactively create tax liabilities, some for periods of up to fifty years. Despite assertions by Indian officials that these retroactive provisions are in accordance with global tax practices, the amendments are much broader in scope and extend for a far longer period of time,” the US Chamber of Commerce, the US-India Business Council and ten other groups said in a letter on Tuesday to Geithner. “These proposed amendments will have a significant negative effect on our companies, customers and shareholders, and investors in India," the groups added. Mukherjee’s tax proposal is part of a budget package that is expected to be taken up by Parliament next month. It would make transactions like Vodafone’s $11 billion acquisition in 2007 of the Indian telecom assets of Hong Kong’s Hutchison Telecommunications taxable. It would effectively overturn the Supreme Court’s January ruling that Vodafone is not liable for up to $4.4 billion in back taxes and penalties on that deal. Vodafone served a notice of dispute to India’s prime minister and other top officials on Tuesday arguing that the proposed retroactive tax on overseas transfers of Indian assets violates legal protections granted to international investors. Vodafone’s latest effort to avoid paying tax on the deal hinges on a bilateral treaty between India and the Netherlands that offers investors some protections. “The Vodafone tax case has become a flash point in India’s relations with foreign companies, stoking concerns that the country’s regulations are becoming increasingly volatile and that foreign companies are becoming targets for a cash-strapped government that needs to raise tax revenue. The government has promised to rein in a fiscal deficit that stood at 5.9 percent of gross domestic product on March 31,” said The Wall Street Journal. On 29 March, seven foreign business groups including the US-based Business Roundtable, the Confederation of British Industry, the Japan Foreign Trade Council and Canadian Manufacturers & Exporters had delivered a scathing letter to the prime minister. “The sudden and unprecedented move (on tax) … has undermined confidence in the policies of the Government of India towards foreign investment and taxation and has called into question the very rule of law, due process, and fair treatment in India,” the groups said in the 29 March letter to the prime minister. “This is now prompting a widespread reconsideration of the costs and benefits of investing in India.” The normally sunny trade relationship between India and the US has become noticeably cantankerous of late. The US in March began dispute settlement proceedings at the World Trade Organization (WTO) against India’s ban on US poultry and egg exports. Last week, India started similar action at the WTO against US import duties on certain Indian steel products. India is also pursuing a complaint against the US at the WTO over a US law enacted two years ago, that significantly increased visa fees for skilled workers and has caused plenty of heartache at Indian tech firms.