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Home » News » Business » Vodafone ruling another reason for govt to work up

Vodafone ruling another reason for govt to work up

That Vodafone has benefitted to the tune of Rs 12,000 crore with the recent Supreme Court ruling saying it’s not liable to pay capital gains tax on the transactions to take over Hutch Essar is a small portion of the ruling. The larger implication of the ruling based on a holistic view of the Indian tax legislations is something that the government has to take note of rather seriously.

The Tax Justice Network Project (UK) in its report published in September, 2005, stated that, “The role played by tax havens in encouraging and profiteering from tax avoidance, tax evasion and capital flight from developed and developing countries is a scandal of gigantic proportions”.

The project recorded that one per cent of the world’s population holds more than 57% of total global worth and that approximately US $ 255 billion annually was involved in using offshore havens to escape taxation.
This is an amount which would more than plug the financing gap to achieve the Millennium Development Goal of reducing the world poverty by 50% by 2015.

Justice KS Radhakrishnan, of the three judges in the Vodafone case, says India is considered to be the most attractive investment destinations and, it is believed to have received $37.763 billion in FDI and $29.048 billion in FII investment up to March 31, 2010.

FDI inflows it is reported were of $ 22.958 billion between April 2010 and January, 2011 and FII investment were $ 31.031 billions.

Reports are afloat that millions of rupees that go out of the country are only to be returned as FDI or FII.
Round Tripping is another form of economy tripping device which involves export of Indian money to tax heaven Mauritius or similar country and then return it to India in the form of FDI or FII. An Indian Company, with the idea of tax evasion can also incorporate a company off-shore, say in a Tax Haven, and then create a wholly-owned subsidiary (WoS) in Mauritius and after obtaining a Mauritius Tax Residency Certificate (TRC) may invest in India.

Large amounts, therefore, can be routed back to India using TRC as a defense. However, corporate veil can pierced into threads if it is established that such an investment is black money or hidden capital. It is nothing but ‘circular movement’ of capital known as Round Tripping. The government can scrap a transaction which is fraudulent and against national interest. But how often has the government exercised this power is a matter for any body’s guess.

It is time the government put in place stringent legislative measures to plug the loopholes in the existing laws and ensure that only a genuine corporate structure set up for purely commercial purpose and indulging in genuine investment is recognised.

Source : http://www.dnaindia.com/analysis/report_vodafone-ruling-another-reason-for-govt-to-work-up_1641066

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