Three quarters of multi-national companies with operations in India fear a 'witch hunt' following a crackdown in anti-avoidance
Multinationals warned: India is latest country to introduce crackdown on tax avoidance as Governments throughout the world are desperate to capture shrinking tax revenues.
Three-quarters of multi-national companies with operations in India fear a 'witch hunt' following a crackdown in anti-avoidance, according to a recent report.
In a survey, conducted by Taxand, the world's largest independent international network of specialist tax advisers to multinational businesses, of nearly 50 independent member firms, 77% of respondents said that the new code, the first in India in 40 years, could open the door to a flood of investigations as the rules allow individual Tax Commissioners to decide what is or is not an 'impermissible tax avoidance arrangement.
Taxand's Mukesh Butani, said: "The companies we interviewed are seriously concerned about this. Individuals should not be allowed to make decisions on this scale and whilst the tax code is a step forward, this could hamper India's ability to remain competitive in the world economy."
The other issue that left companies extremely nervous is new rules dictating that a foreign company, which has part of its control and management situated in India, will be considered as resident for tax purposes. For a large multi-national, this could mean a massive increase in tax bills in order to keep their operations in India.
Butani said: "We clearly see this provision as the backdoor introduction of new laws designed to subject the global operations of Indian companies to further taxes, as well as posing the risk of tax rises to foreign multinationals who meet the partial control and management test in India."
"A further unsettling provision for multi-nationals is that domestic law is set to override treaties. With the US grappling with its domestic law and other countries looking at the menace of tax avoidance it is likely that these international treaties will run counter to the domestic law and will result in court actions for Companies, causing further expense".
The survey amongst the senior management of multinational companies with operations in India also found that 70% believe the anti avoidance rules will succeed in detecting fraud.
The introduction of the new tax code follows the raft of anti avoidance legislation being implemented in the UK and US, as Governments fight to capture the globally shrinking corporate tax revenues and Companies look for new ways to minimise their tax exposure in the face of global recession.
Analysis of the survey highlights that broadly the code has received positive feedback amongst senior management, as they welcome the moderate corporate tax rate, the probability of reduced litigation, pass through tax status for venture capital firms and the overall more stable and less complex tax regime.
In summary of the survey results Butani said: "It is clear that multinational companies fear a 'witch hunt' by tax authorities following the introduction of the new tax code. Taxand believes that multinational companies with operations in India must act now to review the implications of the tax code and to ensure that they are fully prepared for any investigation and scrutiny by the Indian tax authorities."
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NOTES TO EDITORS
Mukesh Butani is one of Taxand's nine board members and leads the tax practice of the network's member firm in India, BMR Advisors.
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