Government notifies new rules to eliminate retro tax mess
The Center notifies the new rules on the process to be followed by the taxpayers concerned.
Companies such as Cairn and Vodafone disputing retrospective tax claims in India will not only have to withdraw all legal proceedings and waive all rights to claim costs or seize Indian assets, but also indemnify the government for the costs and liabilities of any action by other interested parties in the future.
Setting the stage for a closure of retrospective tax disputes over the indirect transfer of assets located in India, the government notified at the end of October 1 of new rules under the Income Tax Act to specify the process. to be followed by the taxpayers concerned to resolve these long-term problems. disputes.
The Income Tax Rules (31st Amendment), 2021, introduce a new part relating to “indirect transfer before May 28, 2012 of assets located in India”, and define the conditions and formats of the commitments to be submitted by all âinterested parties to the tax service in order to settle their tax disputes.
Affected taxpayers, as well as all interested parties (such as their shareholders, for example), will have to waive any claim in any pending legal proceedings, including arbitration, mediation efforts and foreclosure proceedings, with a explicit commitment that such initiatives can under no circumstances be reopened.
In order to avoid the possibility of an unknown interested party raising new claims against the government in the future, the rules state that the “declarant and all interested parties shall indemnify, defend and hold harmless the Republic of the India and its Indian affiliates from and against all costs, expenses, interest, damages and liabilities of any kind arising out of or relating in any way to the assertion or introduction, filing or maintenance of a complaint, at any time after the date of provision of the commitment. ‘
A guarantee of indemnity should be provided so that the taxpayer and interested parties “fully assume the risk of any omissions or errors with respect to the identification and obtaining of authorizations and undertakings from any related or interested party. , as provided for in the commitment â.
In early September, after the publication of draft rules to resolve these tax disputes, most affected actor, UK-based Cairn Energy, said it was working with the Indian government to speed up “documentation and paying the refund “of $ 1.06 billion in retrospective taxes at the center of its high-stakes dispute with India. The company has yet to react to the final wording of the rules.
After years of procrastination, the government amended income tax laws earlier this year to remove retrospective tax provisions introduced in 2012-13, under which Cairn was taxed in 2014 for a corporate restructuring. company in 2006-07. The tax authorities subsequently froze the company’s shares as part of the proceedings and sold them to recover the taxes claimed.
An international arbitration tribunal reviewing the tax dispute ruled in Cairn’s favor last December and awarded him $ 1.2 billion in damages. While the government filed an appeal against the arbitration verdict, Cairn filed lawsuits in several foreign jurisdictions to enforce the tribunal’s award.
In France, the company has obtained court permission to freeze at least 20 Indian properties in Paris. In the United States, he is pushing to secure Air India’s assets by arguing that the national carrier is the government’s âalter egoâ in ongoing legal proceedings.
All these procedures will have to be abandoned and a commitment will be made to this effect in accordance with computer rules to bury these tax disputes, which the former Minister of Finance, the late Arun Jaitley, had described as “fiscal terrorism”.
In addition to dropping records and signing indemnity bonds to protect the government from any future claims for costs and damages due to these tax claims, IT rules also require the taxpayer and all interested parties to post a notice. public or press release explicitly stating that the claims against these tax claims “no longer exist” and they have signed an indemnity agreement.
âThe registrant and all interested parties must provide a copy of this public notice to the Republic of India,â the rules state. Affected taxpayers will be required to provide these undertakings within 45 days, after which the Income Tax Department should process the dispute resolution within an additional 60 days and initiate tax refunds if necessary.