Vodafone Is A Tax Dodger – Don’t Spare It: T. K. Arun
Editorial Team
The author, an eminent columnist, is irked that instead of taking steps to recover the tax of Rs. 19,000 crore that Vodafone sought to evade by adopting unfair means, the Government is actually thinking of sparing Vodafone of that liability. He argues that the Government is acting out of the misplaced fear that being firm with tax dodgers will prove detrimental to the Country. Instead, the Country will benefit if tax is recovered from Vodafone, he says
The controversy over whether the Government should spare Vodafone of the tax of Rs. 19,000 crore that the retrospective amendment seeks to recover from it has polarized the intelligentsia. While, on the one hand, Ex Chief Justice S. H. Kapadia has spoken out in favour of Vodafone and suggested that if the Government is harsh on Vodafone, thousands of jobs could be jeopardized, on the other hand, (late) Ex Chief Justice J. S. Verma had expressed the view that Vodafone had attempted to evade taxes and should not be spared.
Across the Globe, the mood against big multinational corporations which seek to escape tax by transferring the bulk of their income to low tax jurisdictions has become hostile. The US and UK tax authorities are going after big corporates like Google and Apple which are paying very less tax in their home countries despite earning huge profits
Now, T. K. Arun, editor of the Economic Times, has come out strongly against Vodafone and the Government’s efforts to go soft on it. In a hard-hitting article, he points that across the Globe, the mood against big multinational corporations which seek to escape tax by transferring the bulk of their income to low tax jurisdictions has become hostile. The US and UK tax authorities are going after big corporates like Google and Apple which are paying very less tax in their home countries despite earning huge profits.
Even the OECD and the G20, which are made up of rich countries, are seeking to ensure that the laws are tightened so that the loopholes in the law which enable illegitimate tax planning are plugged.
Vodafone itself, in another transaction executed in the UK, had to pay $1.7 billion as a negotiated settlement to the British government for seeking to avoid taxes, T. K. Arun points out.
So, when the UK Government did not spare Vodafone, why should the Indian Government spare Vodafone, he asks.
Collecting taxes from Vodafone would make India a more attractive a place to invest in because it will show that the Government has the sense, authority and the will to act against big tax dodgers operating from tax havens and will also reduce the fiscal deficit and improve macroeconomic balance
The learned editor also argues that there is no doubt that the transaction entered into by Vodafone attracted tax and that Vodafone ought to have deducted taxes thereon instead of seeking to avoid its liability by creating a subterfuge. He emphasizes that the judgement of the Supreme Court holding to the contrary is wrong and he endorses ex-CJI J. S. Verma‘s criticism that the judgement “had sanctified illegitimate tax avoidance by adopting a subterfuge“.
T. K. Arun also points out that the Government’s action in enacting retrospective amendments to supersede the judgement of the Supreme Court is in accordance with the settled practice around the world to make use of retrospective changes to the law if unambiguous entitlement to tax is rendered ambiguous by faulty legal articulation.
The argument that if taxes are collected from Vodafone pursuant to the retrospective amendment, the world would shun India and that thousands of jobs would be put in jeopardy is treated with contempt by T. K. Arun. It is a “delusional argument” and one that “wallows in an unbecoming sense of inferiority” he says.
He adds that, instead, collecting taxes from Vodafone would make India a more attractive a place to invest in because it will show that the Government has the sense, authority and the will to act against big tax dodgers operating from tax havens and will also reduce the fiscal deficit and improve macroeconomic balance.
So, given that the mood and the climate, globally, is against permitting tax evaders to escape, the Government does not have to treat Vodafone with kid gloves or feel nervous about asking tax dodgers to pay up, says the author.
it is well known, no retrospective amendments are wise revenue administration. if you lost you lost that is all. if earned you earned revenue that is all. then there is sanctity of law making, else law becomes some scrap of paper that will degenerate laws as scrap of some papers of law makers. there are a lot of things out of bounds for law makers too, for they are not divine power under some divine right theory! divine right theory is already dead and gone for ever please!
Such stories we will keep on hearing, unless the Government sincerly adopts a policy to obtain expert services from an independent professionals while drafting their Laws and Rules in all areas.
agree with kanwal!
I fully agree what is written by Mr. Pradeep Bhandari, FCA, Channai.
Moreover, after 65 years of independence when numerous tax experts are drafting the law and comes into operation after debates, then there should not be any retrospective amendments which create lots of hue & cry among tax payer and tax collectors for no default on part of the honest tax payer.Thus, the law should be consciously be prospective .
Any retrospective amendments turn the settled law as unsettled, which resulted into litigation’s, pendency of appeals and unnecessary huge demands. We should give due respect to our judicial system.
Incidentally, i read an edit in dna today, that says in short, under Edit 1… ‘ yes, prime minister..’… ‘ can CBI INVESTIGATE WRONG DOING IN THE PMO’s office when PM and his ministers hold so many levers of control over the agency?. paper said, ‘there is no justification for ministry of corporate affairs -MCA turning down CBI’s request to question former coal secretary H C GUPTA in the coal block allocation scam. it added further ‘ Gupta who was coal secretary between 2006 and 2009 the period when maximum number of coal blocks was allotted to private and government companies, is presently a member of the competition commission.
…. it adds PMO toys with idea how to it will give autonomy to CBI’ is the substance of Edit when the very govt is caught in SC’s notice!
from this it shd be crystal clear how this govt is functioning.
by the above analogy one can assume what is retrospective amendment toyed by Kapil sibal or the whole finance finance ministry of chidambaram as also full great honest cabinet that runs india today!
what is wrong Arun’s anguish please!
things do happen and every happening is not a permanent solution. so happenings indeed compete with every other happening, that way happenings land into conflict of happenings, that is competitive advantage and competitive strategies. No strategy ever is comfortable, see how china operates people need to learn strategies from Chinese no where else as they are the master strategists. Even U S S R FAILED IN STRATEGY when USA made Gorbachev to yield to its strategy what happened to USSR is a known story to every reader or commentator even here. so life is funny circle sirs
Every body has some argument. truth is jobs are not always dependent on foreigners. if that be not why people need freedom and independence. to live in colony is fine is it not? Truth every country need to be built on self dependency that is swarajya principle which Mahatma advocated. That caught the imagination of indians then. The same indians in new gen think foreign companies create jobs so we need to relent. So independence works on self esteem and steam. so Arun is right please, though he had not tuned in all aspects after all every newspaper has space limitation besides so called policies. News papers today are in fact unlike in the past’ old journalism is people oriented in long tern interest please. so historical determination resurfaces sooner or later. in the past oldern day rulers relented like Zamarin that export and import will improve so he loved to accept the explorers of west and that thought caught imagination of other petty kings in 16th century what happened every one of you know that is so we call historical determination sir, with no malice to any!
I full agree with the views of Shri. Devadasan.
The Vodafone had not invested money in India. It just took over a going concern from its Hongkong owners. So the money is not received by Indian Economy. Directly it went to Hongkong. And Vodafone was aware of the manipulation the Hongkong company was doing and collaborated with them and helped them by not paying taxes. To avoid this type of manipulation, there is a section in the Income Tax Act which make the buyer to keep the tax portion of the consideration and pay it to the Indian Govt. The records prove that Vodafone was well aware of this and played the game. They did not produce any of their real agreements with Hutch before any of the Indian Authorities. The statement of Justice Kapadia that by giving the Vodafone judgement he saved the jobs of lots of Indians indicates that while deciding the case, Justice Kapadia was led by other considerations! I dont think by the taking over of the mobile company the Vodafone created a single job in India. It was not a new Investment. It just made the Hongkong company rich and benefitted both of them (Vodafone and Hutch). Earlier, our Apex Court made a slavish type of judgement in Bhopal disaster and now everyone in India is aware of it. After some years, the truth regarding the Vodafone also will come out.
True. OUr more than 65 years of independence has helped dishonest people in all walks of life to grow and pushed aside the common man. It is time common man should come out of slumber and actively participate in democratic process. Karnataka is an example; they have thrown away a government which is perceived to be dishonest to its core. Gujarat is another example where a hardworking and honest leader is supported all hog. Unfortunately lobbying, corruption and short term political considerations have ruled this country. Just see FOOD BILL will be another lolly pop or an election bait.
In my view the govt of India should stick up to stand of retrospective amendment in Income TAX aCT,1961 POST VODAFONE CASE ,As it is clear case ofapplying subterfuse so as to avoid payment of tax by emplying dubious method of tax planning by taking advantage of loophole in legislation or gray areas ,had it be done by Indian co. would govt offers similar treatement even after 65 years of Independence still we suffer from defeatist attitude
In India only lobbyist win and the common man is always burdened and is over burdened with such lagress.it is time the small and marginal tax payers join hands and protest against such one sided act.
If on evidence the company has avoided tax, it should be receovered by government with all its might. Negotiations have no place in tax evasion. The cover up the Government is attempting is, such concession will help and expedite foreign direct investment. Such notion is nothing but a sham. Does India need firms which evade tax and it will be like big men can avoid consequence of law. Already by allowing PNOTES money into stock markets the govenment facilitated return of money stached in foreign countries by Indians. This act of government is highly objectionable, either Vodafone pay or get out. Why government does not extend such facility to ordinary citizens. This has government has facilitatd many unprecedented scams and planning few more scams by this kind of concessions.
The problem is that the sellers, who have earned the gains should have been taxed, most of them are Indian connections only. Vodafone has already paid the full price to them. To ask them to pay the tax also , which they were not aware at that time, is morally unethical. The Indian government could have made a protective assessment against Vodafone, but pursuing the case against the sellers. But Indian government did not go after them or did not want to go after them, perhaps because the original spectrum allotment itself is under wraps of political bargaining and give and take. So the government has started to beat the wrong horse in order to hide the ghost that may come up if they pursued the sellers. Now they have to save their face and the coming election is an incentive to settle the case.
Does the government will have the guts to telecast the whole proceedings of the deliberations of the settlement?
Most FDIs through Mauritius and Singapore are only conduit for bringing the foreign money into India and that is why the people in high places do not want the precedent to be set up.
No one should look at the issue with a view on investment or loosing jobs. One should understand what is the taxation law and the contractual liability of a non resident. In that perspective, I beg to differ with Mr.Arun. If fiiscal laws are to be interpreted in the manner in which Mr.Arun proposes, then there will be chaos. His opinion by taxing it India will not loose anything but only will get benefited is some how appear to be misplaced. The trust will be lost. The fortunes of foreign companies or domestic companies should not be based on personal perceptions or social needs of the country but it should be on the basis, strictly on the basis of the interpretation of the concerned provisions.
when i read comments on TK Arun’s article, i wonder what is law making in india. government o india dances on so called oreign investment in whatever way that suits. Truth in law making is always prospective certainly not retrospective under norms o law making. Whatever level Courts may be they need to strictly go by constitution o the country not by even so called constitutional amendments, though amendments are permitted. see in USA til 2003 or so there were about 11000 + constitutional amendment proposals but how many entered in American Constitution.Hope every Advocate/judge/chartered accountant/others may know i suppose. So in that vein i say constitutional amendments in india mostly hal baked concepts, as they were not thread bare discussed at the debating society o Parliament o India. In act Indian parliament is some kind o debating society like housing society under cooperative societies Acts.
Truth when judicial review came up it is not or the courts to discuss on economics but strictly on constitutional proprieties only and nothing more and nothing less.
When PV Narasimha Rao as PM had to become open to opening o economy due to duress foisted by previous regimes which have completely drained tax payers moneys by their fabulous ideas and ideologies which do not have right to derail the economy. yet they derailed a mixed economy o india. He never liked the idea o ever opening the economy as he visualized the demerits that may completely derail indian economy as Indian economy is essentially an agricultural economy like Canada or like countries.
yet he has to as RBI had nothing with it as some meaningful backing or its monetary policy then he toyed with the idea o International Monetary fund loan but as all o you know or aware it would not give loan o financial help unless india alls in its trap, being a clever man he leveraged the then retd RBI governor Dr. Manmohan singh to speak to them as he had enjoyed some clout there in the fund and then PVN used him to get loan but he told him that India would pay o all the loan money in 4 tranches or so, so the fund agreed to alleviate as it also thought twin benefit o india opening its economy as also it will get all the loan it lent.
that way india story o economy opening came up but PVN heart o hearts wanted to maintain balance o running Indian economy as was conceived by Nehru and Co. or obvious reasons.
but later gentlemen took over over leveraged like sub prime men in USA in 2008 that way these worthies wrote a new destiny to this country.
Coming back, judiciary also o late jumped into the bandwagon o economy forgetting its most sacred obligation as custodians o constitution except a ew luminaries like verma/ sabarwal.
indian economists became business economists and all other professionals with smattering knowledge o economics, sorry to say that but with due respect i have to say so, started their own economic interpretations without being economic on interpretations went on so all contusions its constitutional amendments got confounded.
Even same Economic Times wrote several articles in favor o opening up and even sought capital account convertibility. But i am astounded by Arun’s suggestion, probably he has revisited the mixed economy concepts perhaps i believe. He is right. He says don’t indulge in retrospective amendments that is indeed sensible legal interpretation. as any retrospective amendment upsets the apple cart o running a country.
You might have seen in CJI Subba Rao’s suggestion in his judgement in Golaknath vPunjab suggested to government that it will voluntarily restrict its constitutional amendments but soon govt passed 24th amendment or unqualified power constitutional amendment and soon in Kesavananda Bharathi v kerala with 13 judges say 2 more than in Golaknath and JM Shelath on Art 368 said, ‘The respondents on the other hand claim an unlimited power or amending body…it is claimed that democracy can be replaced by any by any other orm o government which may be wholly undemocratic , the federal structure can be replaced by a unitary system and the right to judicial review can be completely taken away.’
The contention was in Dicey’s assertion that parliament o England was so supreme that it could go the extent o declaring that all amen were women or that all blue eyed babies should be massacred . this argument was hypothetical and made to convince the court that there could not be any legal restrictions on the constituent powers o parliament. But it seemed to have an adverse impact on all 13 judges. CJI Sikri and Jus Shelat held that Golaknath had been wrongly decided. CJI Sikri said that it was not necessary to decide whether Golaknath had been rightly decided according to Jus Shelat , the Golaknath decision had become academic because even the assumption that the majority decision in that case was not correct, the result on the question now raised… would just be the same.
Both CJI Slkri and jus. JM Shelath had been parties to to the Golaknath majority., therefore, they might have avoided saying that it was wrong judgement. 7 out o 13 judges ie 7 against 6 that parliaments constituent power under article 368 was constrained by the inviolability o the basic structure o the constitution, or the basic features o the constitution.
Thus they held basic structure or basic features o the constitution could not be destroyed or altered beyond recognition by a constitutional amendment.
while 6 others held parliament had unlimited power o constitutional amendment.
you all know what happened thereat er by smt Indiraji fiat as PM in next appointment o judges.
i have to drive here basic economic structure o india is mixed economy, how said PM PVN said he can destroy, so he never wanted to dilute the economic structure o india by opening up entirely but he has to cleverly get inancial assistance rom International monetary fund that loan today shakes the indian economic foundations, by parliamentary intransigence like retrospective amendments under ever so many acades o international agreements and that influenced former CJI SH Kapadia.
so CJI retd Verma’s views still hold good as Arun puts it.
No one can use subterfuges to make a wrong as a right is the argument Arun advances in his article. i do not ind anything wrong with his analogy in his article please, without meaning any offence to any others’ diametrically opposite views!
With utmost regards, If ‘save jobs’ is taken to be the criteria to tax or not to tax, then all the business houses giving employment should be exempted or hand over the reigns of the Country to some one with rights to do any business, take away the profits/wealth out of India, as Britishers were doing; but provide jobs- mainly clerical.
Bravo, Jobs hi jobs! Enjoy ‘Gulami’ once again.
Well said! I think this is the crux of the matter. Once the Supreme Court has given its verdict, the only resort the government has is to apprach a larger bench and settle the law. But the retrospective ammendment route is complete disregard to rule of law. If tax on vodafone is valid, let the government sit and decide what tax each individual has to pay rather than have the facade of a drafted law. Similar to the excise regime where an inspector used to sit outside the factory to decide upon the excide liability.
When supreme has decided in it’s wisdom the applicability of law and given the judgement after hearing the learned counsels on both the sides at length ,there is no scope for any individual to anlyse the merit of the verdict.
The best could have been done by the government is to amend the law,the way they see merit,prospectively and not do it retrospectively to prove the supremacy of parliament over judiciary.
There is no harm to review and take corrective measures to undo the unlawful,unjust act undone.
Pradeep Bhandari,FCA,Chennai
Its a mockery the govt is making to cover up its latches of not realizing tax dues from seller or awaking too late. Reasons best known to those involved or at large to all of us!
Since there are conflicting judgements by the Apex Court in Vodafone case, the decision could be referred to a larger bench and till then the dept should be happy with what ever amount it has collected and not go for an out of court settlement. This will lead to uncalled for precedence.
Who are we to comment on this when the Honourable Supereme Court has setteled the law saying the amount is not taxable. Lets have some respect to our judicial system. We cannot simply pass comments the way we want.
Our Tax system definitely needed reforms, and we all know in India we always wake up after a incident happens be it Tsunami or rape cases. Thats what happened here also Govt kept sleeping when So many international transactions were coming up in India, If the vodafone could foresee and lay such a transaction why couldnt the Govt foresee the transactions which are coming up and change the law.
Our Government and Legislature deserves this. Government has no option but to keep quiet cause they no Vodafone has generated employments and also contributing to taxes. Will Government give the employment to the employees of vodafone.? And indirectly the citizens will have to bear additonal tax burden for the poor legislators & governance
If Vodafone goes its a shame on us in international forum, where we cannot say we were not prepared for taxing such transaction and only after supreme court said otherwise we understood the our intent was something else.
Sadly, Mr. Arun demonstrates remarkable lack of knowledge of law, and also remarkable disregard for the process of law. We had enacted laws and signed treaties providing tax avoidance option with open eyes in order to attract investment. If our national situation has improved to such an extent that drawing investment with such facilities is no longer required, then we must change the law. But while doing so, it must consciously be prospective.
Before judging the decision of the Supreme Court and criticising the CJI whose integrity is beyond reproach, merely because another equally honest ex-CJI disagreed with the judgment, Mr. Arun must assess the situation as an ordinary citizen who is governed by law. Presuming he, too, is a tax payer, I’d like to ask him how does he determine his taxable income? Is it with reference to the law as is written on the statute book, or as it may stand after a retrospective amendment some decades later? Does one seek advice on interpretation of a taxing statute from a lawyer/accountant or from an astrologer?
Government of India has, for decades, signed tax treaties specifying that if a foreign company invests in the shares pf an Indian company whose predominant assets are immovable properties, then any transfer of shares of that foreign company will be taxable in India. Since similar provision was not made for an Indian subsidiary that is an operating company not having immovable assets as the main assets, then transfer of shares of that foreign company will taxed under the ordinary laws, that is, situs of the shares will be when the company is incorporated and only in that jurisdiction will the shares be taxed on transfer.
That being the position of law, the tax department was in error in determining that capital gains tax was payable in India when shares of some foreign company were transacted. Supreme Court ruled against that error. In order to justify that error, the Government proposed a retrospective amendment and pushed it through. After it was pushed through, suddenly Indian laws appeared terribly uncertain not only to the foreign investors, but also to ordinary Indian citizens governed by these laws. The same question bothers me, if the law as I read today applies to me or the law as it may be written sometime in future does?
In this tirade against Vodafone, Mr. Arun has ignored the fact that Vodafone did not earn the capital gains, it was the buyer!! I don’t know how happy he will feel if he buys a house and after a few years he is asked to pay tax on the capital gains that was earned by the seller, because the law was amended retrospectively? And I wonder why does he not have anything to say about Hutchison which actually earned the capital gains and should somehow be asked to explain all these?
Who made the profit from the transaction? Vodafone? No.
Then why should they be made to pay the tax?
I am not saying there should not be tax. But why in India we have tendency to force the person who is finally caught with the asset to pay whereas the person who is legally liable is moving free?
The bonafide investor who invested as per the law at that time has to be protected.
For the loss to the country it is the burocrates and law makers have to be punished for not acting in time.
Why is it that always the businessman has to be blamed for the lack of clarity in law.
A large part of the income of the big accountancy and consultancy firms with foreign sounding names is derived from tax avoidance schemes which flourish in the name of tax planning. Their legality has agitated courts in India and abroad for a long time. In 1985, a 5-judge bench of the Supreme Court in the McDowell case settled the question decisively, observing: Tax avoidance devices have been honed to a fine art by clever lawyers and consultants advising such corporations. Unfortunately, in the Vodafone and the Mauritius cases, the court has winked at them instead of frowning upon and frustrating them as mandated by the binding judgment in McDowell.Our courts must send a clear signal that India is not a banana republic where foreign companies can be invited to loot our resources and even avoid paying taxes on their windfall gains from the sale of those resources.
Recently articles and news items have appeared in the national newspapers regarding such MNCs following tax avoidance methods in U.K. and the authorities there have taken a stern view of the mischief of the MNCs in tax avoidance. When the developed nations are alarmed by the methods adopted by the MNCs in avoiding tax, why Sibbals in our country are in great hurry to provide escape route to Vodafone?
Sir, only one comment on your this article. Let us not forget that ” son of law minister is representing vodafone”. The international investment will affect is a “sham statement”.
Is Tax planning wrong? working within the available tax structure is the core job of the finance professionals. SHould the govt tax the transactions held overseas for sale of property held outside India. Let the govt change the laws but sincerely the effect should be prospective only. transactions held in the past were done in consonance with the applicable tax laws at that instant.
Moreover the international courts will also hold the prospective views only. Thereby dissent from the views of the author. Sorry.
Why Voda be spared ?
Their legal cell were fully aware of tax implication of the transaction in India still evaded – now when caught red handed – claim clemency and Govt. ready to succumb – strange!
Vodafone must be aware of the Tax implications when they did the transaction. It is unfortunate that they are taking advantage of the weak Government to their benefit.
Even though, Vodafone may threaten leaving India, it will be extremely unlikely that they leave for Tax reasons. If they leave, it will be because of competition.