Amid ongoing tax battle with Vodafone over its acquisition of Hutchison stake in telecom joint venture Hutchison-Essar,the government today said the case is an instance of misusing corporate structure to avoid taxes.
“The Vodafone tax case provides an instance of the misuse of corporate structure for avoiding the payment of taxes,” the White Paper on black money tabled by Finance Minister Pranab Mukherjee in the Parliament said.
The Hutchison Group sold its entire business operation in India in February 2007 to the Vodafone Group for a total consideration of USD 11.2 billion. The same was effected through transfer of a solitary share of a Cayman Islands company,according to the White Paper.
“In this case,the Hutchison Group had made investments in India from 1992 to 2006 through a number of subsidiaries having ‘separate corporate personality’ but which were essentially post box companies based in the Cayman Islands,British Virgin Islands,and Mauritius,” the White Paper noted.
“When the tax authorities requested the accounts of the said company,the answer given was that as per Cayman Islands law,the company was not required to prepare its accounts,” it said.
The Supreme Court had ruled that Vodafone was not liable to pay taxes related to the acquisition of Hutchison stake.
In the 2012-13 Budget,Mukherjee proposed to amend the Income Tax Act,1961,with retrospective effect to bring into tax net overseas mergers and acquisitions involving domestic assets such as Vodafone transaction.
Vodafone has served legal notice to the government on the issue.
According to the White Paper,corporate structuring is a legitimate means of bringing together factors of production in a way that would facilitate business and enterprise and help the economy.
“However,an artificial personality can also be created of a corporate entity to conceal the real beneficiaries.
“Opaque structuring through creation of multiple entities that own each other and the secrecy granted by certain jurisdictions facilitate such misuse,” it added.