Centre to Scrap Retrospective Tax Law; Refund for Vodafone, Cairn on the Cards

The law, which was introduced in 2012 was used to raise large tax demands on Vodafone and Cairn Energy.

The Union Cabinet on Thursday, 5 August, cleared the Taxation Laws (Amendment) Bill, 2021, which seeks to undo the retrospective tax law. Finance Minister Nirmala Sitharaman presented the Bill in the Lok Sabha on Thursday.

The retrospective tax law, which was introduced in 2012, was used to heap huge tax demands on companies, including Vodafone and Cairn Energy, for transactions that had taken place prior to 28 May 2012.

The new Bill provides for a refund of the amount paid, without interest.

The Centre's decision comes after both Vodafone and Cairn Energy won international arbitrations relating to the tax dispute last year.

British energy major Cairn Energy on Thursday, said that it has noted the proposal in the parliament and said, "We are monitoring the situation and will provide a further update in due course," BloombergQuint reported.

The firm had on 23 December 2020, won an international arbitration case against the Indian government over a tax dispute. Prior to this, the Vodafone Group had in September 2020 won an international arbitration case against the levying of retrospective taxes on them by the government.

What is the Taxation Laws (Amendment) Bill, 2021?

“The Bill proposes to amend IT Act, so as to provide that no tax demand shall be raised in future on basis of said retrospective amendment for any indirect transfer of Indian assets if transaction before 28th May, 2012," the newly-passed legislation notes.

"It is further proposed to provide that the demand raised for indirect transfer of Indian assets made before 28th May, 2012 shall be nullified on fulfilment of specified conditions such as withdrawal or furnishing of undertaking for withdrawal of pending litigation and furnishing of an undertaking to the effect that no claim for cost, damages, interest, etc, shall be filed. It is also proposed to refund the amount paid in these cases without any interest thereon."

Taxation Laws (Amendment) Bill, 2021

The government further indicated that the rescindment of the retrospective tax law was a measure to facilitate a more conducive environment for investment in the country.

"In the past few years, major reforms have been initiated in the financial and infrastructure sector which has created a positive environment for investment in the country. However, this retrospective clarificatory amendment and consequent demand created in a few cases continues to be a sore point with potential investors. The country today stands at a juncture when quick recovery of the economy after the COVID-19 pandemic is the need of the hour and foreign investment has an important role to play in promoting faster economic growth and employment," the government said.

(With inputs from NDTV and Bloomberg)