India Woos Foreign Investors: Abandons Discriminatory Tax Policies

In order to woo foreign investors, Indian government has decided to accept the Bombay High Court order of October 10, 2014 that went in favour of Vodafone India Services Pvt. Ltd. in the Rs.3,200 crore ($0.5 million approx) tax case. Similar approach would be adopted in transfer pricing cases where courts have decided in favour of the litigants. This comes as a big relief to MNCs locked in litigation with Indian tax authorities.
By so doing, the government has conveyed to global investors that its decisions henceforth would be fair, transparent and predictable.
While welcoming the Indian government’s decision not to appeal the Bombay High Court ruling, a Vodafone spokesperson said that stability and predictability in tax matters are important for long-term investors.
The retrospective taxation introduced by the previous government in a separate Vodafone case relating to the 2010 transaction had raised doubts about consistency and predictability of the Indian tax policies and thus discouraged overseas investments flowing into India. In that case, the I-T Department had raised additional tax payment from the company alleging undervaluation in its shares in subsidiary, Vodafone India Services while transferring them to the parent company in Britain.
This decision would bring relief to Dutch oil major Shell that had also earned a favourable ruling from the Bombay High Court in the transfer pricing case. The government agreed that the transaction in the Vodafone case was on capital account and there is no income to be chargeable to tax.
The Indian government while seeking investments from foreign countries in a big way has been conveying to foreign investors that there would be no legacy issues of any sort and it would pursue a non-adversarial, consistent, predictable and transparent tax regime.