Tax Break

Who said tax is boring?

Dial M For Modi

'Mind the gap, lass'

‘Mind the gap, lass’

Bored out of my mind on a bus journey through the northeastern city of Sunderland around forty years ago, I involuntarily tuned into one of the working-class conversations going on around me. Not one word. Not one single syllable. They may as well have been talking Polish (which, nowadays, they probably would be). Forget that line about the English and Americans being two peoples separated by a common language – this was one people separated by the Watford Gap (an almost mythical motorway service station about half way up the country).

The fact is that, when it comes to understanding English speakers, some accents are more understandable than others. The Scots (from whom I hail) are notorious, but the loveable Indians are world champions in incomprehensibility.

They did extensive business with the subcontinent

They did extensive business with the subcontinent

Don’t believe me? Next time you are invited to participate in a telephone conference call with India, watch your colleagues. Guaranteed, there will be a finger permanently poised above the mute button, ready to activate it at the first drawn-breath to discuss what the participants think the other guy said. Then, as the call proceeds, your lead person’s head will gradually home in on the phone, until his ear is in communion with  the loudspeaker. It is another myth, that the closer you get to the speaker, the more you understand.

Of course, the irony is that India is the epicentre of Telephone Service Centres. Need help anywhere in the world? Call India, and walk away more confused than when you started.

Given the importance of the telephone to the Indian economy, it is perhaps not surprising that some of the biggest tax controversies in recent years have involved telecommunications. Less clear is why they have involved a single company.

Vodafone has been persistently persecuted by the Indian tax authorities over the last decade. It started when they bought an Indian group from Hutchinson at the ultimate holding company level, several countries removed from India. Although the tax burden, if any, should have fallen on Hutchinson, Vodafone was hit for not deducting tax at source. When the company successfully claimed in the Supreme Court that there was no legal basis for the tax authority’s claim, the Congress-run Government promptly changed the law with retroactive effect to 1961. At time of going to press, Vodafone and the Indian people were still staring each other down. Needless to say, this has done wonders for foreign investor confidence.

Meanwhile, the fairly new BJP Government of Narendra Modi has been making soothing comments about regulation and business. At the end of January the authorities announced that they would not appeal a decision in favour of, wait for it, Vodafone, concerning the taxation of a share issue. Vodafone’s Indian company, owned through Mauritius, had issued new shares to a Mauritius holding company for a premium that the tax authorities claimed to be ridiculously low. As a result they claimed that income had been created. The company argued that, even if the price was too low, this was a capital transaction in the shares (which, I suspect, would not be liable to tax under the relevant India/Mauritius treaty). The government has caved in, citing the need to provide certainty to foreign investors in tax matters. Hallelujah!

"What do you mean: 'Please send me an e-mail'?"

“What do you mean: ‘Please send me an e-mail’?”

Perhaps the next U-turn will be in respect of the Hutchinson  purchase. The previous government got its lines crossed and failed to understand the effect it was having on foreign investors. Narendra Modi has stated repeatedly that he wants to make India a draw for investment. I wonder if he knows Vodafone’s number?

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