Getting on top of tax issues

Uncertainties on the tax front can be daunting for investors in India. Abhishek Dutta and Rashmi Chaudhury at HSA Advocates explain what it takes to overcome the challenges

Finland recently explored business opportunities in India, despite a pending tax issue that Nokia has with India, which the Finnish government has taken up with the Indian government. Around the same time the CEO of Vodafone India, Marten Pieters, said that Vodafone is still committed to India – even while acknowledging tax disputes with the Indian government.

Both these cases are no longer purely tax matters and have taken on the overtones of issues that are routinely deliberated at a bilateral level between countries. The disputes permeate across various facets of the Indian business and tax scenario, including the advance pricing agreements that various foreign multinationals are interested in, transfer pricing issues, foreign direct investment, etc. To state that India’s position on taxation is unique is however misleading. Other rising economies are sympathetic to India’s stand although not taking it themselves.

Uncertainties remain

A potential risk to investing in India is retrospective taxation, which was introduced in 2012 and has been widely resented by the international business community. While bilateral investment treaties (BITs) typically exclude taxation issues, efforts are being made to bring the retrospective taxation amendments within the framework of the India-Netherlands BIT. One view is that the coverage of retrospective amendments could be an interpretative issue under article 4(4) of the BIT. Crucial from an investor’s perspective is the law as it currently stands.

Abhishek Dutta is a partner at HSA Advocates, where Rashmi Chaudhury is a senior associate. They can be contacted at abhishek.dutta@hsalegal.com and rashmi.chaudhury@hsalegal.com.