Retro tax: Government issues draft rules for litigation settlement

Cairn Energy, Vodafone and 15 companies looking to settle retrospective tax disputes will have to declare details upfront of every “interested party” to the dispute with India and furnish their declaration “irrevocably” withdrawing all litigation and claims as part of proceedings.

This would be in addition to their own undertaking to withdraw any pending litigation or proceeding before any forum and assurance that they won’t pursue any further claim in the future.

The government on Saturday issued draft rules for implementing the Taxation Laws (Amendment) Act 2021 passed earlier this month to settle retrospective tax cases. It has sought comments by September 4 on the proposed rules, after which they will be formally notified.

The declaration from all interested parties is aimed at ring-fencing the government and government entities from any future claims from stakeholders other than these companies such as direct or indirect shareholders or any other beneficial owner at any global fora.

‘Open to Changes’

“The draft forms also contemplate a situation where a separate interested party such as direct or indirect shareholders, or any other beneficial owner of the taxpayer in whose case these proceedings are ongoing, may bring or file any claim against the republic or Indian affiliates at any time after filing the undertaking,” said Sandeep Jhunjhunwala, partner at Nangia Andersen LLP. “In such cases, the taxpayer is required to indemnify and defend the Republic or Indian affiliates against any and all costs.”

A senior official told ET that the government would be open to any changes to the rules to address any concerns that any company may have. Any dispute with respect to the prescribed forms or orders under these rules would be governed by Indian laws and local courts would have exclusive jurisdiction to decide disputes. “The aim of the amendment made by 2021 Act is to bring tax certainty and ensure that once specified conditions are fulfilled, the pending income tax proceedings shall be withdrawn, demand, if any raised, shall be nullified, and amount if any collected shall be refunded to the taxpayer without any interest,” the Central Board of Direct Taxes (CBDT) said in a statement on Saturday while issuing the proposed rules.

India has passed a law scrapping the retrospective provision in the income tax law to tax the indirect transfer of assets, nullifying demands raised on transactions prior to May 28, 2012, when it came into force. The amendment passed in the monsoon session of Parliament provides a mechanism for settling litigation, including at international forums, with Cairn Energy, Vodafone and 15 others. The law provides that the government will withdraw all tax demands levied retrospectively and refund taxes collected, without interest and penalty, to settle the matter if the companies withdraw legal challenges filed.

The rules propose to provide up to 45 days from the date of notification for litigants to provide an undertaking for settlement, and up to 15 days post-submission for tax officials to accept or reject the undertaking. All litigation, arbitration and enforcement proceedings will have to be withdrawn within 60 days of the undertaking being accepted.

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