India shields pre-2017 foreign investment gains from strict tax rules
- This would allay fears of retrospective taxation, a longstanding concern for global investors
NEW DELHI: India said it would not apply its strict tax evasion rules on foreign investments made before April 2017, easing concerns among global investors on Wednesday after a court order in a Tiger Global case raised fears of retrospective scrutiny.
A landmark Supreme Court ruling in December said Tiger Global must pay taxes on its $1.6 billion sale of a stake in an Indian company in 2018. The judges said Tiger Global used its Mauritius units that were only “conduits”, and no benefit under an international treaty for pre-2017 investments would apply.
Tiger Global denied wrongdoing. Investors were worried the ruling would allow Indian tax officers to reopen any past transactions related to investments made before 2017, especially those routed via tax havens such as Mauritius.
On Wednesday, India’s income tax department said gains from investments made before April 2017 would not be subject to any scrutiny based on the country’s stricter anti-tax avoidance rules that seek to curb aggressive tax planning and evasion.
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“This clarifies that investments up to April 1, 2017 are protected from subsequent changes in tax regulations,” said Riaz Thingna, a partner at consultancy Grant Thornton Bharat.
This would allay fears of retrospective taxation, a longstanding concern for global investors, and reinforce India’s image as a transparent tax regime, he added.
India, one of the world’s fastest-growing major economies, has long attracted foreign investors. But tax uncertainty has remained a key concern, from treaty interpretation and import scrutiny to prolonged litigation.
Volkswagen is challenging in court India’s demand for back taxes running into a record $1.4 billion, which came after 12 years of scrutiny over alleged improper import declarations.
In another high-profile tax saga, Vodafone won its case against a $2 billion retrospective Indian tax demand in 2020 after more than a decade of legal battles with New Delhi, including international arbitration at The Hague.
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