Vodafone has written to Manmohan Singh saying taxing cross-border deals with retrospective effect will tarnish India's image as an investment destination.
Terming the move to tax cross-border deals with retrospective effect as "arbitrary and punitive treatment", UK-based telecom giant Vodafone has written to Prime Minister Manmohan Singh saying the move will tarnish India's image as an investment destination.
Vodafone Group CEO Vittorio Colao in the March 26 letter recalled his meeting with Prime Minister in June 2010, where Singh adviced the telecom giant "to have faith in the protection of the Indian judicial system".
"In January this year, the Supreme Court... ruled that (Vodafone's acquisition of 67 per cent stake in Hutch Essar from Hong Kong-based Hutchison Telcom) was not taxable in India... A subsequent review petition was dismissed by the Supreme Court earlier this month," Colao wrote.
But subsequent to the ruling, the government proposes to amend the Income Tax Act with retrospective effect to levy withholding tax on deals like Vodafone-Hutch.
"Were they to do so prospectively, we and other investors would be able to plan our affairs for the future with confidence. But the (Finance) Bill (yet to be cleared by Parliament) contains extraordinary retrospective provisions, going back 50 years and removing the protection of the courts from investors," he wrote.
He said a retrospective obligation to withhold tax or retrospective designation of Vodafone as Hutchison's "agent" for tax purposes would be "profoundly unjust".
"The transaction closed five years ago. Vodafone cannot now withhold tax from a sum paid to Hutchison then. Vodafone has made no capital gains in India, and has yet to remove one rupee from our Indian investments. So the effect would be to require Vodafone to pay an enormous sum (Rs11,000 crore) of someone else's tax. How can that represent justice," he asked.
Vodafone, he said, had invested Rs36,000 crore in India, creating 8,600 jobs directly and paying over Rs25,000 crore in taxes and fees to Indian Exchequer.
"Arbitrary and punitive retrospective treatment of one of India's most prominent long-term foreign investors by the tax authorities could only tarnish the image of India as a destination for inward investment," he added.
A Vodafone spokesperson confirmed Colao writing the letter saying "given the potential implications for Vodafone -should these extraordinary retrospective provisions become law - it should not be surprising that Vodafone's Chief Executive has made representations to the Indian government".
On the same day, Colao also wrote to Finance Minister Pranab Mukherjee saying if the proposed retrospective changes are made, it would "raise far reaching constitutional implications for the position of the judiciary in India".
Several global business associations have also written to the PM and the Finance Minister seeking reconsideration of the proposal and warned that the proposed move has prompted widespread review of costs and benefits of investing in India.
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