Wednesday, April 04, 2012

More on India's robust approach to international tax

The Institute of Chartered Accountants in England and Wales (ICAEW) recently asked: "Are the global tectonic plates shifting?" - to which our answer would be yes. On international tax, developing countries are starting to find their voice, and increasingly understanding that they don't have to dance to the tune of rich countries and their multinational lobbyists. We recently highlighted India's recent robust challenge to the OECD, where they noted that it was
"inconceivable as to how a standard developed by Government of only 34 countries can be accepted . . . as 'standard' of sharing of revenue on international transactions. . . particularly when it only takes care of the interest of developed countries."
That is a tectonic plate shifting, right there. The Tax Journal is now carrying a useful overview of the issues, citing TJN's Senior Adviser David Spencer, who last week wrote for us in this area on the specific area of transfer pricing, citing a number of renowned international experts slamming the OECD's dominant 'Arm's Length' approach to the issue. Some excerpts from Spencer's article:
  • David Rosenbloom: the OECD's Arm's Length system is fundamentally unworkable
  • Martin Sullivan: “The problem with the arm’s-length method is that it does not work well in theory or in practice.”
  • Vito Tanzi: "Tax jurisdictions are allocating increasing administrative resources to what may be a futile attempt, over the long run, to deal with this [transfer mispricing] problem."
  • (And there are various others, such as from Michael Durst, here)

Meanwhile, on a specific tax dispute, India has been having a punch-up with the UK Chancellor, George Osborne, over India's efforts to get tax revenue out of deals laced with offshore shenanigans, by the mobile telecommunications giant Vodafone. In summary, India's Supreme Court ruled in favour of Vodafone, allowing the offshore abuses to stand, so India is proposing to make retrospective changes to the law to clarify the issues. The UK business press has been filled with huffing and puffing about India needing to 'signal' that it is open for business and all that, and not to apply retroactive terms, but the Indian press has pointed out some rather uncomfortable contradictions in the UK's position. From India Today (via AABA:)

"India appears to have stumped Britain as far as retrospective amendment in the tax law to deal with cases such as Vodafone is concerned. Britain's chancellor of the exchequer George Osborne took up the Vodafone issue with finance minister Pranab Mukherjee on Monday but it turned out that the UK had done exactly the same thing to bring entities based in tax havens under the tax net.

In an incredible coincidence, the UK has also in its Budget for 2012, presented on February 27, introduced restrospective provisions to check the avoidance of corporation tax. So clearly, what's sauce for the goose should be sauce for the gander."

(more on this from Tax Research, here, and from the Business Standard, here.) This particular episode to be continued. . . It seems to be in the spirit of a comment made at a UN conference last year:

"the OECD should not try to dominate the development of international tax issues: no more Rule Makers forcing Rule Takers to accept what the Rule Makers decide."


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