What is Retro-Tax and why is India canceling it? 🤔

What is Retro-Tax and why is India canceling it? 🤔

What’s poppin’ — finance ministry is amending the Income Tax Act to remove a stupid-ass clause brought in 2012, that demanded retrospective taxes be paid to government on indirect transfer of assets, that happened even way back in history.

Some handholding — so lets take an example. Vodafone International wanted to enter India in 2007, it bought out 67% stake in India operations of Hutch. But… instead of buying into Hutch India directly, Vodafone purchased Hutch’s Cayman Islands registered company, which owned the India business, giving it direct control to the keys to the India business!

Now GOI claimed that was silly — you gotta pay me some taxes, so slapped Vodafone International with a massive-ass tax bill on the ~$11 billion deal.

Worse? Vodafone-Hutch deal happened in 2007. GOI brought the law in 2012. And fined Vodafone in 2014! Aka demanding taxes retrospectively.

The ruling became a pain in the butt for foreign companies trying to venture in and out of India — affecting 17+ major deals in history, including Cairn Energy’s restructuring, which led to embarrassing fights even in international courts.

Going forward — the Finance ministry now says it’ll eliminate the retrospective element of the clause, and abandon any demand of taxes, and even refund all of these companies any taxes charged under the 2012 law. 👏

FYI, taxes for all future deals remain unchanged however, with only the ones before 2012 dropped.

Should help boost Dalal Street’s morale a bit. Tax lesson over.

Zzz Ok GIF by Jim Gaffigan