New Delhi: In a bid to avoid a repeat of the ongoing tax dispute over the Vodafone-Essar deal, especially when India Inc is making a number of cross-border transactions, the Centre is planning to expedite the work on a double tax avoidance agreement (DTAA) with Hong Kong.
A DTAA will ensure that tax issues don’t cloud investment flows into India by some of the biggest global companies that use Hong Kong as the nodal hub for their Asia-Pacific operations. India already has a double-taxation pact and a Comprehensive Economic Co-operation Agreement with Singapore, the other Asian centre where several MNCs are headquartered. Over 1,500 Indian companies, including banks, also have their presence in Hong Kong and so clarity on the tax treatment would be important for them.
A DTAA allows a company to plead that it should be taxed in only one of the signatory countries, in this case India or Hong Kong, an autonomous region under mainland China. But the absence of the treaty complicates matters. The revenue department’s case against Vodafone, which bought out Hutch’s stake in the Hutchison-Essar telecom venture in India, has, in fact, been boosted by the absence of the tax agreement.
The DTAA has been debated between the island and Indian officials.
But the Vodafone case has put a fresh urgency to the negotiations. Incidentally, with international taxation and transfer pricing being murky issues in such cases as well as those like Morgan Stanley's India operations, the income tax department intends to closely scrutinise tax returns involving international transactions and transfer pricing cases. As part of its action plan for this fiscal, taxmen will take up for compulsory scrutiny tax returns involving international transactions over Rs 15 crore. The revenue authorities will take up these cases provided there is a substantial and recurring question of law, which is in appeal or pending with the appellate authority. |
