On Thursday India offered reassuring clarifications on new tax laws that have caused high fit of anger and irritation in US trade circles. Damage control was the name of the game as India’s finance minister Pranab Mukherjee arrived in Washington DC for World Bank-IMF meetings and talks with his US counterparts. It didn’t take long for US treasury secretary Timothy Geithner to throw his full weight behind the complaint by US business community against India’s so-called retrospective taxation during a bilateral meeting in his office.
Mukherjee, Indian official said, explained to Geithner that the changes in taxation law proposed are “not substantive but clarificatory in nature as the changes reiterated only the intent of the legislation.” During the meeting, it was also pointed out that as per Section 149 of the Income Tax Act, no tax cases can be opened beyond 6 years, a statement from the Indian side said. The US side was also informed that tax cases which have been assessed and finalized up to April 1, 2012 cannot be reopened.
On some issues though, New Delhi refused to budge. For instance, Mukherjee maintained that Indian tax laws are very clear that the companies making capital gains from the assets located in India will have to pay taxes either in the country of their origin or in India. “It is not a case of double taxation but ensuring that companies that are liable to pay tax must pay some tax,” the Indian statement said.
On the issue of categorization of software sales as royalties, Mukherjee said that discussions have been held in the past between the tax authorities in both the countries and they had agreed to disagree on such characterization.