Last month’s news from India, that tax residency certificates would no longer be a must for foreigners claiming treaty benefits, will come as a welcome relief to the finance departments of organizations doing business with that great country. Obtaining certificates of residence can be a pain in the neck, especially when they are needed quickly. When it comes to transparent partnerships, like accounting firms, the bureaucracy can be a nightmare.
Although at first sight this announcement may put India in a positive light, it is more a reflection of the relief to heads no longer banging against brick walls – the original requirement for certificates stemmed from a silly amendment to the law in 2012. There is so much that is daft about India’s approach to international taxation.
When I hear the words ‘India’ and ‘Tax’ juxtaposed, I invariably think of Kipling’s quote ‘Power without responsibility – the prerogative of the harlot throughout the ages.’
India – the largest democracy on Mother Earth – has, when it comes to international tax, a split personality. On the one hand, its appellate tribunals and courts wax more lyrical than anybody else on tax issues brought before them. In 2017 it was estimated that nearly a quarter of a million disputes were awaiting resolution. Every international tax practitioner knows that, when examining the case history of OECD treaty articles, it is rare for a bon mot from India not to pop off the page. On the other hand, India maintains primitive imperialist designs on the tax that rightly belongs to others (I wonder what Gandhi would have said). Its Dividend Distribution Tax, declared a tax on the distributing company rather than a withholding tax on the recipient, has deftly (and, I believe, uniquely) sidestepped treaty withholding restrictions, while its technical services tax has long-armed income that should have nothing to do with India. Then there was that beautiful moment a few years back when they followed seller Hutchison and buyer Vodafone up the food chain, and rather than going for a bite out of the indirect seller’s cake, tried improbably to extract it from the indirect buyer’s mouth. That’s chutzpah.
Perhaps, however, this recent loosening of the tax belt is not just a blip, but a symptom of something bigger. Since 2014 India has jumped a remarkable 65 places in the World Bank’s Ease of Doing Business rankings. Starting in 142nd place, it is today sandwiched at 77 between Uzbekistan (the butt of many of Borat’s jokes) and Oman. To show they were aware that the century had turned, they even stopped production of the Hindustan Ambassador in 2014 – a copy of an early model of the Morris Oxford that the British replaced nearly sixty years previously. That’s progress.
Microsoft, IBM, Proctor and Gamble, Tesco, Wallmart, motor companies (thank heaven not British) – India is opening up for business. This has been accompanied by a massive reform in indirect taxation.
It is to be hoped that international direct taxation will be next. Wouldn’t it be nice if those legislators who draft the laws so suspectly could listen to those world-class judges charged with interpreting them so expertly? Or is that an encroachment upon the foundations of democracy?