India finance minister's message to MNCs, no rethink on Vodafone tax

New Delhi, May 9 (PTI) In a strong message to multinationals campaign against taxing Vodafone, the Indian government has ruled out any rethinking on the issue making it clear that India cannot be a tax haven just to attract foreign investment. It also asserted that Parliament has the right to make amendments to law to correct Supreme Court judgement and would not allow a situation where a corporate would avoid paying tax here by operating from a tax haven. "I would like to be guided either by Double Taxation Avoidance Agreement (DTAA) or tax. There cannot be a situation that somebody will make money on an asset located in India and will not pay tax either in India or to the country of its origin. "... because of making some arrangements through certain tax haven areas through a complicated setting up of series of subsidiaries and having huge capital gains on the assets located in India," India's Finance Minister Pranab Mukherjee said in a forthright assertion of the proposal to make a retrospective amendment to tax Vodafone-type deals. In an hour-long speech in reply to the debate in the Lok Sabha on the Finance Bill Tuesday evening, he said taxing Vodafone is about combating black money menace and referred to the Supreme Court judgement which had held that the British telecom major was not liable to pay tax on its acquisition of Hutchison stake in Hutchison Essar in 2007. Ever since the Budget proposed to amend the Income Tax Act with retrospective effect to tax Vodafone-type deals, international business and domestic industry have been campaigning against such a move saying it would hurt foreign investment. Referring to questions as to how the Government could go against the Supreme Court judgement, Mukherjee said, "I am fully aware of my right as a legislature, law making power only vests in Parliament. "The Supreme Court may interpret law but equally Parliament has right, legislative right to express its intention by making amendment to correct the SC judgement." He said the very first amendment to the Constitution of India arose out of a judgement of Supreme Court in 1956. Referring to the British tax amendment of a similar nature in 2008, which gave effect from 1987, Mukherjee asserted that "if they are entitled, then surely India is equally entitled. India is not an inferior country compared to anyone." The Finance Minister referred to high domestic savings rate and said the country was not in such a "desperate situation" to attract foreign investment. "We cannot declare India a tax haven simply to attract foreign investment. Please remember, when the investment was also not there we did not eat lizard. Till today, the investment required is substantially met by our rate of domestic savings. "Therefore, we are not in that desperate a situation that a country of 120 crore (1.2 billion) people will be treated as a tax haven like Cayman Islands, Isle of Mann or Virgin Island. We cannot be equated with them. Either pay tax here or you pay tax in your own country with which we have DTAA," he said. After the reply the Lok Sabha passed the Finance Bill giving effect to the tax proposals of India's budget for 2012-13 beginning April 1, 2012. The Bill will now go to Rajya Sabha, the upper house, which will return it for Presidential assent. PTI