I'm sure this is a gigantically popular topic amongst the readership here, but there is a huge kerfuffle going on in the int'l business community with respect to taxes in India. Several years ago, Indian tax authorities told Vodafone it owed around $2 billion in taxes because of its purchase of an Indian business from a seller who had a large gain; the tax authorities contended that Vodafone was supposed to withhold the tax on the seller's income and because it didn't, it was liable. Vodafone purchased the business by acquiring the shares of a non-Indian entity that owned the Indian business, a transaction that took place outside of India (think Cayman Co #1 bought Bermuda Co #2, the latter indirectly owned the Indian business).
Vodafone sued and eventually won at the Indian Supreme Court, which ruled that Indian law did not give the tax authorities jurisdiction to tax offshore stock purchases, even if such a purchase resulted in a change in control of a business located in India. The Indian gov't was displeased and thus proposed in its 2012 Finance Bill to reverse the result of the ruling retroactively, not only for Vodafone but for similar transactions dating all the way back to the 1960s. Needless to say the business community is up in arms, and quite rightly so on the retroactive point, it seems to me (and there are a great many other objectionable aspects of the bill). Here's a FT article on the subject, which also notes that the US Chamber of Commerce is asking Geithner to pressure India on the bill (strangely, Sec. Geithner does not return my calls when ask him to do something).
What interests me is that the business community is indignant because India seems to think it can tax the offshore share transfer and reminds me of some of the corporate form discussions at the mothership. The business community's basic position is that "I sold stock of non-Indian company X to non-Indian company Y, not the Indian business, so you can't tax me." But, no one pays a multi-billion dollar purchase price because they like the design of the stock certificates in Mauritius (or, these days, the corresponding electronic journal entries). They're buying the operating business in India, and India attempting to tax the offshore share transfer is some kind of horrible affront, as if they can't imagine life without the corporate form, or where it's only respected in certain instances.
In any event, I guess we'll see if the full court press by the international business community can get India to drop the bill, in conjunction with pressure on the United States Department of the Treasury (I would bet yes).
Tax Avoidance in India and the Corporate FormMay 09, 2012 by Ugh
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