back to article Vodafone fights India's retrospective tax grab

Vodafone is asking for international arbitration on its claim that the Indian government's attempt to retrospectively apply changes in tax law is illegal. The law concerned would, if it were retrospectively applied, cost Vodafone dearly as it managed to avoid paying capital gains tax of £1.4bn on its acquisition of Hutchison …

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Joke

Simple answer

Vodafone should suggest Dave Hartnett as a mediator. I hear he has a lot of experience in dealing with massive corporate tax liabilities.

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Devil

Vodafone pay tax?

Who knew?

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Regardless of the morality debate about tax avoidance, retrospective taxation will harm the Indian economy. The UK has had plenty of opportunity to close, restrospectively, tax 'loopholes' (read: legislative f**kups by HMRC's lawyers) but have chosen never to do so. If India continues to pursue it they may find foreign investors find the tax-risk of investing in India to outweigh the cheap labour.

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Anonymous Coward

So investors get away with anything they wish! nice one! So they can commit murder or anything because they've got us over a barrel? Stop the stupidity and grow a spine.

If they want to play the game, bring it on. I'd ban them from trading in the country. I'm sure their competitors will be happy of the extra income. It's our country and they should be doing as we tell them and not bow to them.

It’ll never happen because our elected representatives are the heads of these large companies.

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Unhappy

Any form of retrospective law is abhorrent

... but who's going to feel much sympathy for Vodafone ?

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Happy

Outstanding

About bloody time this 'globally tax complaint' bullshit was thrown out.

As usual the Indians are showing their former masters how it should be done.

If only the UK had as much backbone

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Ru
Meh

Re: Outstanding

I sincerely hope that the UK doesn't get into the retrospective law enforcement game.

We already have laws and regulations in place to extract money from Vodaphone, but dear old Dave saw to it that we did not. The Indians did not, and decided that they'd just change the rules to suit their needs.

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Re: Outstanding

Too late, Ru.

The Treasury blocked two of Barlays' wheezes just last month, one retrospectively (see http://www.bbc.co.uk/news/business-17525977)

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Re: Outstanding

@irish donkey

be careful what you wish for. If retrospective taxation becomes the norm, then you might just find the tax authorities come after ordinary people for more people when they decide keeping to the law is just a tiresome chore. Retrospective law changes are a menace to ordinary people as what is a legal act now, might turn out later to be something you get in trouble for.

It should be noted that some of the "anti avoidance" measures on the statue book are not quite the same as they already set out areas of uncertainty which need clearance before new schemes are exercised. Not ideal, but certainly not changing the rules retrospectively.

Another thing to note is that retrospective legislation is a sure way of scaring away inward investment. The Indian government may yet find they pay a penalty if they pursue this route. Also, if they abrogate treaties they've made with other countries, they could finds that's not cost free too.

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Re: Outstanding

Ohhh things are gonna change.... doom and gloom. It could be worse. Could it?

Well in case people hadn't noticed tax evasion/fraud/avoidance is doing serious damage to all the economies around the world.

A lot of people in this country are losing their jobs and livelihoods and if MegaCorp's like Vodafone and others paid their taxes their maybe a few less people would be losing their jobs.

So 'Go India' get your tax!

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Anonymous Coward

It's far too convenient if governments can lose a tax court case - not like the outcome so change the rules - it's going to harm investment in India if it goes ahead. Wonder how an Indian company buying a UK company would like it the other way around.

They had tax rules - Vodafone were found to have acted legally within those rules - how can it be fair to create new rules retrospectively - it's a farce.

How would you like it if the UK government suddenly said 'you paid 20% tax last year' actually it should have been 35% so pay up.

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Joke

Vodafone in arbitration?

I wonder if the arbitration company will sign them up for a minimum 24 months?

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Big Brother

Retrospective tax

My wife's colleague had her company car tax band retrospectively recalculated and she ended up paying the difference based on 3 years worth of tax. Funnily enough she's Indian.

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Anonymous Coward

Vodafone pay tax in India?

Why should they? They don't pay what they owe here.

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Anonymous Coward

"My wife's colleague had her company car tax band retrospectively recalculated and she ended up paying the difference based on 3 years worth of tax. Funnily enough she's Indian."

Most likely as there had been an actual error - I doubt they re-wrote the law?

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Anonymous Coward

"A lot of people in this country are losing their jobs and livelihoods and if MegaCorp's like Vodafone and others paid their taxes their maybe a few less people would be losing their jobs."

Taxing companies MORE does not jobs make - taxing them less may. More tax pushes up cost (and the price of their goods) and taxes raised goes to the government so what they can waste it on some crappy IT project.

Think we need lower taxed not more / higher taxes - people (and companies) will have more in their pockets to spend. Unless anyone believes governments allocate resources efficiently...?

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Anonymous Coward

@AC

"More tax pushes up cost"

Wrong. More tax lowers profits (and thus bonuses). Big difference.

More tax revenue allows for more services (e.g. road repairs) which improves the economy which leads to more profits (which may well negate the lower profits caused by the tax payments, but it would take time to filter through).

Tax evasion is short-sighted and in the end self-harming.

Maybe we do need lower taxes, but first we need people to stop being assholes and stop gaming the system. If people actually paid their dues, then we might be able to lower the taxes due to the increase in collection.

Far too much focus is placed on the next quarter and companies stagger from short-term-gain to short-term-gain. This is what caused the whole financial crisis we are in - no one is considering a 5, 10 or even 20 year game-plan. Pension companies should be, but the bonuses paid do not promote such planning.

Heck, there yah go. Solve the problem in one fell swoop. Pay pension managers bonuses based on profits earned over 10 years. These are majority shareholders and hod A LOT of power. corporate culture would change almost overnight. Yes there would be pain, but in the end society would benefit.

And society is more important than any company. Period.

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Stop

3.5% on £100,000 ++++ ????

Just to be absolutley clear ...

The comments above that are opposed to the retro tax above are by members of a highly aggressive, wholly artificial and dubious tax avoidance schemes run by the I.O.M. company Montpelier (Formerly MTM), KPMG, Steed and PwC. These schemes seek to artifically exploit and abuse the double taxation treaty which results in highly paid IT contractors (In my experience rates average between £100,000 and £200,000 per annum), property developers and medical professionals paying just 3.5% tax. Compare this with a nurse, teacher, fireman or front line soldier earning less than £22,000 a year but paying around 20% tax.

Before BN66 was introduced the scheme user's "strategy" was to enter into any highly aggressive scheme in the full knowledge the scheme would eventually get shut down, at which point they would take their money and run to the next scheme promising an absurdly low tax rate. A perpetual game of cat and mouse between the scheme users, the scheme providers and HMRC with Joe Public footing the bill to the tune of hundereds of millions of pounds (The average scheme user has managed to avoid between £100,000 and £200,000 using this scheme over the years).

3.5% tax. That's right. Compare this with a nurse, teacher, fireman or front line soldier earning less than £22,000 a year but paying around 20% tax..

Such schemes are so far removed from the spirit of the law that they make a mockery of it. Desperate and ridiculous attempts at justification include :

1) Blaming an overly-complex tax system which is ripe for abuse ... "The government made me do it"

2) "Everybody else is at it so why not us?"

3) Hopelessly comparing themselves to multinational corporations like Vodaphone and retying to make political capital from articles like the one above.

4) "If you don't support us now ... It'll be you and your ISAs next"/

These people have even resorted to taking HMRC to the high court and framing this in terms of a breach of “human rights” (Seriously, you could not make this up !). Not surprisingly, the High Court, Court of Appeal and Supreme Court threw out this laughably preposterous claim with short shrift and treated it with the contempt it deserved.

Yes, i'll repeat that again ... 3.5% tax. Compare this with a nurse, teacher, fireman or front line soldier earning less than £22,000 a year but paying around 20% tax.

It is rapacious and predatory tax avoidance such as this that infuriates and angers the majority of the hard working public who are struggling to make ends meet in the current climate of austerity. Who have had cut after cut imposed on them. Who actually contribute to society, unlike the property developer who makes his money at the expense of other's misery and unlike the IT temp who earns 6 figures annually. Do these people seriously expect any sympathy from struggling, hard working families who earn a fraction of their income but pay upwards of 6 times the amount of tax?

3.5% tax.Compare this with a nurse, teacher, fireman or front line soldier earning less than £22,000 a year but paying around 20% tax.

The users of these schemes are in many ways more offensive than the Philip Greens, Barclays and Vodaphones of the world because they do not create jobs or contribute to growth. No, the tax avoided by this morally repugnant bunch goes straight into their own pockets at the expense of the UK tax payer.

As far as the retrospection argument goes, well I agree that retrospection in law is generally not a good path to take. But in this case it is absolutely justified. I attended the initial sales pitch by MTM/Montpelier many years ago (let’s just say out of interest), and apart from pouring scorn on people who pay a fair share of tax they arrogantly claimed that they knew that this particular Double Taxation treaty loophole would soon be shut .. but that was ok, because millions would already have been made in their "clever" scheme and it would be too late for HMRC to do anything about it. MTM/Montpelier could simply initiate another scheme abusing a different loophole until that one was shut (proactively) ... and repeat ... ad infinitum.

Therefore, retrospection is indeed required in this case to prevent the continuation of this morally repugnant behaviour. And yes aggressively exploiting loopholes in this manner is morally repugnant, not beneficial to society as a whole and couldn’t be further from the spirit of the law. Yes, loopholes are legal and human nature dictates that there will always be a greedy few who are rich enough and morally corrupt enough to afford the resources to exploit them.

3.5% tax. Yes, that's right. THREE AND A HALF PERCENT TAX ! Compare this with a nurse, teacher, fireman or front line soldier earning less than £21,000 a year but paying around 20% tax.

The users of this scheme entered into it in the full knowledge of what they were getting themselves into (3.5% tax? No alarm bells ringing here guys?) so should not be surprised when the tax man comes knocking and expects them to pay their way like everybody else.

The following quotes reference the High court judge that ruled against the scheme and it's users:

"In particular, the potential distortion of competition should not be overlooked. It is one thing to try to compete with, say, an IT consultant who is perhaps more experienced, efficient or skilled: it is entirely a different matter to seek to match a competitor who has the advantage of an effective income tax rate of 3.5 per cent. "

"No more than a cursory glance at UK fiscal legislation is needed to see that residence is the core connecting factor for the imposition of income tax."

"The expectation ... has also an important moral dimension. As Mr Singh QC submitted, those who reside in a state and enjoy the safety and security that it offers, and all the other public goods that it makes available (such as a fair and efficient system of civil justice), can hardly complain if they must by law pay income tax to the state of residence."

"HMRC [did not] undertake not to bring proceedings in respect of the arrangements, or suggest to taxpayers that no legislation would be enacted in any event to put the matter beyond doubt, or suggest that any such legislation would have only prospective effect."

" At no time did HMRC indicate to affected taxpayers, including the Claimant, that they could safely rely upon the arrangements. On the contrary, HMRC consistently maintained that the arrangements did not work, and advised taxpayers to pay on account the income tax which HMRC said was properly due. Any prudent taxpayer who followed that advice would not now be prejudiced by the retrospective effect of the legislation."

"Parliament was also entitled, having regard to the background that I have set out, to legislate with retrospective effect, particularly in order to ensure a "fair balance" between the interests of the great body of resident taxpayers who paid income tax on their income from a trade or profession in the normal way, and the taxpayers, like the Claimant, who had sought to exploit, by artificial arrangements, the DTA"

"It is also immediately plain that the tax avoidance scheme, if it worked, would be singularly attractive to any person in the position of the Claimant, that is, any resident of the UK who, as a self-employed person, carried on a trade or profession here. So long as end users were content to contract with an intermediary, rather than with the actual provider of the services, and so long as professional rules did not preclude such intermediation (barristers, for example, need not apply), any UK self-employed trader could reduce his or her taxable income to a tiny fraction of what it would otherwise have been. I accept that very many would not do so, taking the view that the tax avoidance scheme was wholly artificial and perhaps thinking that as UK residents they should be paying UK income tax on the profits of their trade or profession. But, and the figures produced by HMRC confirm this, a substantial number would be attracted. By the time the challenged legislation was enacted there were about 2,500 taxpayers exploiting similar arrangements, and the amount of income tax at stake had risen to £100 million. "

"The prudent would retain liquid funds to ensure that they could meet any future tax demand, including claims for interest. If, however, taxpayers chose to spend the whole, or a substantial part, of their net income on current consumption, making no, or inadequate provision for any future liability, or to invest part of it in illiquid assets that might decline in value, they did so at their own risk. "

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Stop

3.5% tax

Not only do these people suffer from immeasurable greed, crass stupidity and solipsistic delusion, they have a breathtakingly arrogant view of the general public whom they believe to lack the intelligence required to understand the complexity of their situation.

Of course the reality is there is no complexity...let me spell it out again ... IT Contractors, property developers and Doctors paying 3.5% tax on a 6 figure salary. Compare this with a nurse, teacher, fireman or front line soldier earning less than £22,000 a year but paying around 20% tax.

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