With the protracted Vodafone wrangling and a spate of high-profile tax disputes with companies including Royal Dutch Shell and Nokia Oyj denting corporate sentiment,the government is planning an image makeover.
It plans to draw a line beyond which there will be no appeal in legal disputes with corporate sector players in future. The move,aimed at striking a more conciliatory note in its disputes with India Inc.,could effectively ensure that the government does not keep opening new fronts in its battle against private companies on tax issues and other legal disputes by appealing nearly all cases from lower courts through to the Supreme Court.
Planning Commission Deputy Chairman Montek Singh Ahluwalia on Wednesday indicated that the government had initiated discussions on constituting an internal mechanism for settling disputes with the private sector.
Dispute resolution is a key factor in improving business confidence,especially considering the number of cases locked up in litigation. The government needs to set up an internal mechanism to ensure that it does not appeal a case all the way up to the Supreme Court. At some point,we have to decide (that) we will not appeal further… We are working on this, Ahluwalia said at the India Summit 2013 organised by The Economist.
According to Ahluwalia,about 80 per cent of cases in court pertain to government appeals,including tax cases. The government,he said,should have an agency or an arbitrator for resolving disputes. As per finance ministry estimates,the cumulative amount locked up in litigation in direct tax cases,as on September 30,2012,was Rs 1,00,271 crore,while another Rs 1,08,079 crore was stuck in indirect taxes until December 31,2012.
According to the World Bank Groups comparative survey on doing business in 185 countries,India ranks 184th out of 185 in terms of efficiency in enforcing contracts during the last two years.
Vodafone Group Plc,the biggest corporate investor in India,is currently fighting an over $ 2-billion tax dispute with the tax department over its 2007 acquisition of Hong Kong-based Hutchison Whampoas mobile assets in the country. At least 1,500 transfer pricing disputes were reported to be in litigation in India as of February 2011,compared with fewer than six in the US and none in Taiwan or Singapore,an Ernst & Young survey showed in August 2012.
Apart from the tax and legal disputes with domestic companies,the multinational companies battling out with the government on transfer pricing issues include Anglo-Dutch oil major Royal Dutch Shell and South Koreas LG Electronics. Shell said last month that it would challenge a claim that its local unit underpriced shares transferred to the parent by $ 2.8 billion.
LG,Singapore property group Ascendas,French IT services firm Capgemini,and Cadbury are among numerous global companies involved in transfer pricing disputes in India. These firms have challenged the tax departments orders.