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International Tax Newsletter - Spring/Summer 2012 - India

VODAFONE DECISION

The Indian revenue authorities are being increasingly aggressive with regards to the taxation of multinational organizations.  In such an environment, the decision in the case of Vodafone has restored some faith in the Indian judicial system.  In the case of Vodafone International Holdings, Netherlands vs. Govt of India, the Supreme Court has ruled that transfer of shares of a foreign company by a non-resident to another non-resident does not attract Indian capital gains tax, even if the transfer results in the acquisition of Indian assets held by the foreign company. The decision has largely put to rest, although temporarily, a raging controversy relating to taxability of offshore transfers using the medium of special purpose vehicles. While the verdict in this case was based on the facts and circumstances of the transaction, the judgment laid down clear and predictable guidelines distinguishing what is permissible and what is not. By placing the burden of proof on the tax authorities, the Supreme Court has coupled discretion with accountability. 

However, the Indian legislature has subsequently undertaken to amend the tax law to include taxation of transactions involving such indirect transfer of shares in Indian companies.  Multinational organizations are adopting a wait and watch policy as regards making fresh investments in India.


More information on this development can be provided by S. Santhanakrishnan, PKF India, through the EisnerAmper contacts listed at the end of this Newsletter. 

International Tax Newsletter - Spring/Summer 2012 Issue 

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