From the Times of India (April 19, 2012)
US industry turns heat on Pranab over new tax laws
WASHINGTON: A dozen powerful US trade and industry bodies on Wednesday
turned the heat on Washington to challenge some recent Indian tax
amendments, including retroactive tax collection, which they warned
will detrimental to the investment climate in India and future U.S
business prospects.
The organizations wrote a strongly-worded letter to US treasury
secretary Timothy Geithner, asking him to take up the matter with
India's finance minister Pranab Mukherjee during the latter's visit to
the annual World Bank-IMF spring meetings later this week.
The trade associations said the new Indian proposals in Finance Bill
2012, which include ''an unprecedented period of retroactive tax
collection, a broad and unclear general anti-abuse rule (GAAR) and an
onerous tax on indirect stock transfer, are inconsistent with
international tax policy and standards and result in significant
erosion of the rule of law.''
''We encourage you to raise these concerns with your Indian
counterparts during the upcoming IMF and World Bank meetings this
week,'' they told Geithner.
While acknowledging that ''every nation has a sovereign right to
legislate,'' the trade bodies said the new Indian laws are
''troubling'' in a number of major respects, including the
''inappropriate expansion'' of the definition of royalties for computer
software and for transmission by satellite, cable, optic fiber or
similar technology, and the ''lack of clarity'' on the status of
participatory notes.
The letter challenged assertions by Indian officials that the
retroactive provisions are in accordance with global tax practices,
saying the amendments are much broader in scope and extend for a far
longer period of time.
''Such amendments are inconsistent with India's specific obligations to
the U.S. under the current bilateral tax treaty. Furthermore, the
unilateral definition of treaty terms may significantly alter the
benefits and burdens of the existing Income Tax Treaty to the detriment
of the U.S.,'' they maintained.
The trade bodies, including the US Chamber of Commerce and the US-India
Business Council (USIBC), said the ''unprecedented'' nature of the
retroactive tax amendment ''sets a particularly poor precedent and,
consequently, we believe it essential that the US treasury speak out so
that other countries might be dissuaded from enacting similar
policies.''
Mukherjee arrives in Washington DC on Thursday for a series of
bilateral and multilateral meetings at a time US-India business ties
are in turmoil over the new tax laws and the overall relationship
itself is said to have lost some momentum because of electoral
distractions in both countries. A USIBC reception last week for Nancy
Powell, the new U.S ambassador to India, was replete with sidebar
conversations and complaints about the new laws and how it was a
dampener for business ties, ensuring that it will be one of the first
items on her agenda when she arrives in New Delhi this week.
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