TEI's letter praised the Government of India's Expert Report for recognizing that retrospective tax legislation should be enacted only in exceptional cases and for recommending that the newly enacted indirect stock transfer tax should be narrowed and applied prospectively.
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On behalf of Tax Executives Institute, Inc., I am writing to comment on the "Draft Report on Retrospective Amendments Relating to Indirect Transfer," released on October 9th by the Expert Committee chaired by Dr. Parthasarathi Shome (Report).
Tax Executives Institute (TEI) was founded in 1944 to serve the needs of in-house tax professionals. With 7,000 members worldwide, today the Institute has 55 chapters in Asia, Europe, and North America, and represents 3,000 of the largest companies around the globe. As the preeminent association of in-house tax professionals worldwide, TEI has a significant interest in promoting fair tax laws and policies at all levels of government across the globe.
Because certainty is critical to business decision-making, TEI has a particular interest in legislation that would upset the settled expectations of taxpayers. Thus, earlier this year TEI submitted a letter to Indian government officials opposing certain tax aspects of Finance Bill 2012. Of particular concern to the 3,000 companies represented by TEI's members were the retrospective aspects of the legislation and, in particular, the provisions that would retroactively overturn a series of recent rulings and judgments by the courts of India, including the Supreme Court. In TEI's view, retroactive legislation should only be enacted in extreme and abusive situations and should generally not be embraced simply to increase a country's tax base. Because retroactive legislation robs taxpayers of certainty in respect of the application of already complex tax provisions, we regret that it could adversely affect the willingness of businesses to commence or continue operations in India (or any other country).
For these reasons, TEI is pleased that the Report takes a strong stand against retrospective tax legislation generally, noting that it is justified only in "exceptional or rarest of rare cases." TEI agrees with this approach, including the Report's conclusion that retrospective legislation is appropriate, in general, only to "clarify" existing law or to address highly abusive tax schemes.
Similarly, we commend the authors of the Report for recognizing that the taxation of indirect transfers of interests in Indian companies introduced by the Finance Act 2012 should apply on a prospective basis only. While TEI believes that the proposed tax is generally inconsistent with the approach taken by other countries – most of which do not tax such transfers at all – our concern here is with the prospective issue. We believe the prospective application of any substantive change is a simple matter of fairness to taxpayers that relied upon the expectation that Indian law, prior to Finance Act 2012, did not tax such transfers, a view the Supreme Court validated in the Vodafone case.
Moreover, should the government of India decide to apply the tax retroactively, TEI endorses the Report's recommendation that no interest or penalties should apply and, further, that the tax be collected from the seller, rather than the purchaser, in such transfers. Similarly, TEI supports the Report's recommendations to clarify the indirect transfer tax's application and limit the tax's scope from the approach taken in Finance Act 2012.
Finally, in respect of matters of tax policy generally, it has been TEI's experience across jurisdictions that major changes to a country's tax laws are best made in consultation with relevant stakeholders, including taxpayers and taxpayer groups such as the Institute. To be sure, such an approach may not be feasible in all cases, surveying the views of affected parties should generally ensure that policymakers are fully informed of the consequences – intended and unintended – of substantial tax policy changes, and thus be in a position to assess whether such changes are in the best interests of their constituents. The Institute would welcome the opportunity to participate in such a process in the future.
TEI appreciates the opportunity to comment on the Report. If you have any questions about this letter please do not hesitate to contact Benjamin R. Shreck, TEI Tax Counsel on 202.638.5601 or firstname.lastname@example.org.
TAX EXECUTIVES INSTITUTE, INC.
Carita R. Twinem
TEI International President
1. See Letter to Honourable Prime Minister Dr. Manmohan Singh, et. al., from TEI International President David M. Penney, April 6, 2012. Available at: http://www.tei.org/news/advocacy/Documents/IndiaFinanceBill%20%20FINAL%200406.pdf