Letter From Global Business Councils to PM | Precedent | Taxes

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March 29, 2012 Dr. Manmohan Singh Honorable Prime Minister of India South Block, Raisina Hill New Delhi 110011 Re: Finance Bill 2012 Dear Sir, We are writing to express deep concerns about many of the tax provisions proposed in the Finance Bill 2012. We are independent trade associations, described in the attached statements, that together count more than 250,000 companies as members. Our member companies are engaged in a wide spectrum of industries throughout the world and based in many differe
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  March 29, 2012Dr. Manmohan SinghHonorable Prime Minister of IndiaSouth Block, Raisina HillNew Delhi 110011Re: Finance Bill 2012Dear Sir,We are writing to express deep concerns about many of the tax provisions proposed in the FinanceBill 2012. We are independent trade associations, described in the attached statements, thattogether count more than 250,000 companies as members. Our member companies are engaged ina wide spectrum of industries throughout the world and based in many different countries, but theyshare a number of serious concerns about proposals advanced in the Finance Bill.If enacted, these proposals will significantly alter the Indian taxation of our member companies, withretroactive effect extending back for as much as half a century, and reverse many decided cases.Some of our member companies had already begun reevaluating their investments in India due toincreasing levels of controversy and uncertainty regarding taxation in recent years. The sudden andunprecedented move in the Bill has undermined confidence in the policies of the Government of India toward foreign investment and taxation and has called into question the very rule of law, dueprocess, and fair treatment in India.This is now prompting a widespread reconsideration of the costs and benefits of investing in India.Every nation has a sovereign right to legislate, but these proposals are disturbing to investors from India’s trading partners in several major respects. Their policy direction is inconsistent with prevai ling international norms, which, together with India’s current difficulties in resolving international tax disputes, creates an intolerable risk of double taxation. Their unfetteredretroactivity also departs significantly from the practice followed in other countries, which prohibitor carefully limit the use of retroactive tax legislation.Their disregard for the judiciary is particularly striking when compared with the practice of othercountries, which respect their court decisions and the principle of res judicata. The proposals alsocreate serious uncertainty about whether India intends to take unilateral action to upset the balanceof its existing treaty obligations, as they authorize the Central Board of Direct Taxation to definemany terms used in tax treaties, with effect from the date on which each treaty entered into force.Together, these proposals make it impossible for companies to predict the costs and risks of doingbusiness in India or to have confidence that their results in past years will stand.Other provisions of the Bill would protect the Government of India from having to return taxespreviously collected as payments and deposits even if required to comply with court decisions, andwould specifically grant the tax department powers to demand and collect tax from taxpayersnotwithstanding court decisions to the contrary. This appears to permit revenue authorities to actunchecked by the judiciary and must be addressed.  Although presented as clarifications, these changes are seen as in clear reaction and contradiction toa long series of recent rulings and judgements rendered by Indian tribunals, High Courts and theSupreme Court of India, and they would likewise affect many currently pending cases and audits.The most prominent of the judgements that the proposals appear designed to reverse is the veryrecent Supreme Court ruling in the Vodafone case, holding that it is a well-established principle of Indian law that an overseas transaction cannot be taxed in India even if it has the indirect effect of  changing control of a company in India. The Bill also would expand the definition of ‘royalty’ retroactively to 1976 to include, among other things, consideration received for computer softwareand for transmission by satellite, cable, optic fibre or similar technology. This provision appearsdesigned to nullify a number of recent rulings and court decisions, including those in cases involvingAsia Satellite Telecommunications, Ericsson, Factset Research Systems, Infosys Technologies,Intelsat,ISRO Satellite Centre, Lucent Technologies, Motorola, and TV Today Network. These are onlya few of some two dozen retroactive provisions in the Bill. If tax law changes are made, they shouldnot apply retroactively. Past court decisions must stand despite subsequent legislation. There appears to be an assumption, often expressed by Indian tax authorities, that India’s ability to attract foreign investment is not affected by its taxation policies and practices. This simply is not thecase, especially as other countries adopt tax reforms and trade and regulatory measures toencourage foreign direct investment. India will lose significant ground as a destination forinternational investment if it fails to align itself with policy and practice around the world andrestore confidence in the relevance of the judiciary.Respectfully submitted,Business RoundtableCanadian Manufacturers & ExportersCapital Markets Tax Committee of AsiaConfederation of British IndustryJapan Foreign Trade Council, Inc.National Foreign Trade Council, Inc.United States Council for International Businesscc:Shri Pranab MukherjeeHonorable Minister of FinanceMinistry of FinanceNorth BlockNew Delhi  – 110001Shri Salman KhurshidHonourable Minister for Law & JusticeMinistry of Law and Justice  A-Wing, 4th Floor, Shastri BhawanNew Delhi 110 001Shri Anand SharmaHonorable Minister of Commerce & IndustryMinistry of Commerce & IndustryUdyog BhawanNew Delhi 110011
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