Amid intense lobbying by global trade bodies in favour for Vodafone in the Rs 11,000-crore tax dispute case, the Finance Ministry today asserted that similar transactions are taxed in USA, UK and other European nations.
A Finance Ministry official also questioned the decision of the British telecom major to invoke India-Netherlands investment treaty saying the $11.2 billion deal was signed in Cayman Island.
"Such transactions (overseas M&As involving domestic assets) are leviable to tax in USA, UK, other OECD countries and in China," Finance Secretary R S Gujral said.
The issue pertains to the proposed amendment in Income Tax Act with retrospective effect, which would bring Vodafone-type deals under tax net and the UK-based telecom firm would be liable to pay Rs 11,000 crore tax for its acquisition of Hutchison's stake in Hutchison Essar Ltd in May 2007.
"There was a substantive retrospective amendment in UK whereby they taxed Barclays.... Now if such transactions are leviable to tax there, then why should they (companies) not pay tax here?," Gujral questioned,” Gujral added.
Vodafone in a statement clarified, it "pays tax in the UK as a UK tax resident. Vodafone has not been asked to pay taxes in the UK because of any retrospective amendments".
Gujral further said the Revenue Department had alerted both Vodafone and Hutch in March 2007 that the proposed transaction was prima-facie liable to tax and Vodafone should withhold tax before remitting money.
However, he added, "despite that Vodafone remitted money without withholding tax. Obviously they have taken a conscious considered view based upon whatever legal advise they might have received".
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