Way paved for HK tax deal

In a move that will pave way for Double Taxation Avoidance Agreement (DTAA) treaty with Hong Kong, the Central Board of Direct Taxes (CBDT) has notified the Hong Kong Special Administrative Region (SAR) of the People’s Republic of China as ‘specified territory’.

The move is in tandem with the amendment of the Section 90 of the Income Tax Act, enabling the Central government to enter into an agreement with any specified territory outside India, in addition to the already existing provision of agreement with the government of any other country. The Section was amended via Finance Act, 2009.

Explaining the need for such a pact, a source close to the development said, “We already have a pact with China, but Hong Kong (SAR) is not covered under it. Our intention is to have DTAA with Hong Kong (SAR) as we have trade relations with the
region and it is the economic capital of Asia.” However, the official declined to comment on the period by when the deal is likely to be signed.

The move, tax officials feel, will facilitate tax proceedings against both Hutchison Telecommunications

International Ltd (HTIL) and Vodafone for the $11.2 billion deal they struck in October 2007. “At a further stage, the notification will help us recover tax on HTIL and tax deduction at source on Vodafone as this payment was in connection to assets based in the country,” said the official.

In October 2009, the tax authorities issued show-cause notice to Vodafone questioning why its $11.2 billion acquisition of HTIL should not be taxed. Vodafone International Holdings, in January this year, said the Indian tax department did not have the jurisdiction to tax its acquisition of HTIL. Prior to issuance of the show-cause notice, the company had even approached court, but to no avail.

The Supreme Court had already dismissed the firm’s application questioning the tax department’s jurisdiction over a Dutch company.

This month, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Guernsey, Isle of Man, Jersey,  Netherlands Antilles and Macau had been notified, enabling the central government to initiate and negotiate agreements for exchange of information for the prevention of evasion or avoidance of income tax and
assistance in collection of income tax with the nine specified territories.