Tax research UK; – 03/04/12
George Osborne has the temerity to argue in favour of Vodafone’s tax abuse in India – and loses
IndiaAdd comments
Apr032012
Businesstoday in India carried this great report today (which I admit I quote at length):
India appears to have stumped Britain as far as retrospective amendment in the tax law to deal withcases such as Vodafoneis concerned. Britain’s chancellor of the exchequerGeorge Osborne took up the Vodafone issuewith finance minister Pranab Mukherjee on Monday but it turned out that the UK had done exactly the same thing to bring entities based in tax havens under the tax net.
In an incredible coincidence, the UK has also in its Budget for 2012, presented on February27, introduced restrospective provisions to check the avoidance of corporation tax. So clearly, what’s sauce for the goose should be sauce for the gander. Finance ministry officials had dug out details of the amendment made in the UK’s Finance Act, 2008, with retrospective effect from 1987 to prevent tax avoidance through entities based in the Isles of Man and Jersey. In a sense, the boot turned out to be on the other foot enabling Mukherjee to more than hold his ground.
According to sources, Osborne was told thatIndia’s proposal for a “clarificatory retrospective amendment”to cover cases like Vodafone is the same as that of the UK as it aims to prevent tax avoidance through Cayman Islands and British Virgin Islands.
Interestingly, the UK had also decided to go in for a retrospective amendment after a court had ruled against the Inland Revenue Commissioner’s decision to impose tax on an entity registered in the Isle of Man.
The UK government had characterised these changes to the law as a clarification of the law rather than as retrospective changes. This is precisely what Indian finance ministry is saying as well. The UK amendment reads: “The amendments made by sub sections 1 to 3 are treated as always having had effect. The retrospective amendment was upheld by the courts in Britain.”
The court of appeal had ruled that if these amendments “were not made retrospective, the claimants would obtain a windfall at the expense of the general body of tax payers. It would be unfair to the general body of tax payers not to give Section 58 retrospective effect”.
Osborne said UK investors were anxious following India’s proposal to amend the tax law, an Indian official said. He also emphasised that the Supreme Court has ruled in favour of Vodafone. While the Rs 11,000-crore Vodafone tax issue figured prominently during the discussion between the two finance ministers, it was not mentioned in the joint statement released after the meeting.
Osborne is being typically hypocritical. Only last week a director of HMRC said, in my presence, that HMRC would proposeretrospectivetaxlegislationto stop abuse – as it has just done with Barclays. So he has not a leg to stand on.
But it’s worse than that. Mysteriously Vodafone’s notorious UK tax case was only settled a week before George last went to India – when he lobbied for Vodafone against the Indiangovernment. And we all know about the dubious nature of that settlement.
Osborne should stop digging.
UK did an India in 2008 to levy retro tax
India Times April 6th 2012
Dhananjay Mahapatra, TNN |Apr 6, 2012, 06.18AM IST
NEW DELHI: The UK has done what India proposes to do - a retrospective amendment to the Income Tax Act to levy capital gains tax on offshore deals like Vodafone, despite the Supreme Court absolving the London-based telecom multinational of the Rs 11,000-crore tax liability.
Britain's chancellor of the exchequer George Osborne, during a recent visit to India, had aired apprehension over the proposed retrospective amendment of the I-T Act to bring into the tax net deals signed abroad to control business empires in India, on the ground that it could be a retrograde step for foreign investments.
But Osborne appeared to be oblivious of the UK Finance Act 2008, Section 58 of which retrospectively changed the law to target tax avoidance schemes. Like Vodafone's acquisition of Hutchison Telecommunication through a Cayman Island deal resulted in the Supreme Court ruling that the overseas deal was outside the I-T department's jurisdiction, the UK court of appeal had in 1989 upheld a decision of a lower court to quash a decision of the UK tax department to tax a UK resident's earnings through an offshore partnership based in Jersey.
In the case Padmore vs IRC, the court of appeal was told that the UK-Jersey double taxation avoidance agreement exempted tax on a UK citizen's earnings in Jersey. In March 2008, the UK government - in its Budget Note 66 (BN66) - introduced changes to Clause 55 of the UK Finance Bill 2008, specifically intending to remove the ability for beneficiaries of foreign trusts to exploit double taxation treaties, though terming it as a "clarification".
On July 21, 2008, the Finance Act was enacted and the changes introduced in Clause 55 of the bill became Section 58 of the UK Residents and Foreign Partnerships Act, amending earlier Acts of Parliament.
This retrospective amendment rendered illegal any use of tax avoidance schemes, such as those set up after the Padmore case, even though it was legal at that distant point of time.
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Osborne backs Vodafone on India tax
April 2, 20123:12 pmby Neil Munshi, Financial Times
0George Osborne, the UK’s finance minister, has added his voice to the chorus warning that India’s plans for retrospective taxation of deals like Vodafone’s 2007 purchase of Hutchinson Essar will hurt investment sentiment towards the country.
“We are concerned about the proposed budget measure, not just because of its impact on one company, Vodafone, but because we think it might damage the overall climate for investment in India,” Osborne told the FT, speaking at the British High Commission in New Delhi.
Osborne’s comments follow a letter sent over the weekend by seven business associations from the US, the UK, Canada, Japan and Hong Kong, to Indian prime minister Manmohan Singh warning him against endorsing retroactive tax rules.
The associations said some companies had already begun to re-evaluate their investments and others could follow suit in “a widespread reconsideration of the costs and benefits of investing inIndia”.
India’s plans to amend laws relating to taxation of overseas acquisitions of domestic assets, which risks reopening a $2.9bn tax dispute settled earlier this year with Vodafone, has drawn harsh criticism from foreign investors already beleaguered by the country’s unpredictable regulation.
While Osborne’s words are likely to put further pressure on the government, his position will not go unchallenged. CNBC anchor Shereen Bhan, in an interview with Osborne, asked the chancellor whether there might be double standards at play. She accused the UK government of applying its own retrospective rule change on Barclays, closing down schemes designed to avoid more than £500m in taxes.
Osborne to challenge Indian tax change
Financial Times April 1st 2012
By Jim Pickard
George Osborne is to make the case against a plan by the Indian government that could hit Vodafone and other western companies with backdated tax demands totalling billions of pounds.
On a visit to India on Monday, the UK chancellor will say that the decision last week to backdate capital gains tax on corporate acquisitions could jeopardise the ability of British companies to invest in local projects.
The most high-profile company affected is Vodafone, which may face a huge retrospective bill. “This is an issue that concerns many British businesses and not just Vodafone,” said a Treasury official.
A group of international business lobbying organisations, including the CBI employers’ group and the US Council for International Business, wrote to the Indian government on Sunday warning of “deep concerns” about the development.
They said the decision would make it hard for companies to predict the future cost of doing business in India.
Kraft and SABMiller are among the companies that could be affected.
Mr Osborne will also urge New Delhi to reconsider its decision to buy £7bn worth of strike jets from France’s Dassault rather than the Eurofighter consortium, in which Britain’s BAE Systems has a stake.
The decision earlier this year prompted calls in some quarters for the UK to end its aid commitment to the fast-growing nation.