A former chief commissioner of the income-tax department, who was instrumental in preparing the revenue department’s case for levying a tax on the $11-billion Vodafone-Hutch Essar deal, has resigned from professional services firm KPMG that has Vodafone as its client. Girish Dave, the former chief commissioner, had joined KPMG after his retirement, a move that was looked at askance by the higher echelons of the Indian Revenue Service. Mr Dave will now advise the tax department, as it continues to defend its tax claim on Vodafone before the Bombay High Court.
The accounting industry saw Mr Dave’s appointment as a big coup for KPMG, but the Indian tax administration wasn’t comfortable with one of its high-profile officers crossing the line overnight.
Sometime in mid-June, Mr Dave, 61, put in his papers at KPMG. No public announcement was made. While Mr Dave was not forthcoming on queries posed by ET — “I may not like to discuss my personal matters,” he said — KPMG was terse in its response to ET’s queries. When asked to explain the circumstances that led to Mr Dave quitting KPMG, Dinesh Kanabar, head of the tax division at the firm, said: “Ask this question to Mr Dave. He will tell you why he quit.”
“Joining one of the Big Fours (as KPMG and other consulting firms are called) as senior advisor may be legally OK, but morally wrong,” said a senior official with the I-T department. “He (Mr Dave) was a model for many officers in the department and it is good that he quit KPMG,” the official added, requesting not to be named as he is not authorised to speak to the media.
The I-T department is fighting the tax case with Vodafone in the Bombay HC over the department’s jurisdiction to tax the UK-listed telecom major on a transaction that took place outside India between two overseas parties.
The tax dispute arose after the I-T department said that Vodafone’s acquisition of a 67% equity stake in Hutchison Essar from Hong Kong’s Hutchison Telecommunications in 2007 was taxable in India. Vodafone is contesting this claim.
Mr Dave had been advising the tax department even after he was transferred out of the international tax division. He continued to oversee the preparation for the tax demand on Vodafone, until he retired in January 2010. Mr Dave’s contribution in raising the Rs 12,000-crore tax demand, a closely-studied case for overseas tax regimes, has been emulated abroad.
Recently, tax departments in China and Uganda, too, levied tax on cross-border acquisitions that involved domestic companies.
Rider: Going by one’s guess, there is every reason to believe that,a similar change in direction , just as in regard to transfer pricing issues, happening also to ‘CGT’ issues cannot be far away. For,as viewed, the underlying fundamental considerations – mainly,centered on the formidable ‘extra territorial jurisdiction’ – are convincingly no different.
Reaction (impromptu): Prima facie, it is quite bewildering, rather taken to offend anyone’s ‘common sense’, that why so much ado is sought to being made about nothing. Especially so,as it looks so trivial and must be of no consequence, even remotely, should the recent developments be kept in the backdrop; such as the government’s decisive course of action in the matter of vexing transfer of pricing issues, -not peculiar or just confined to Vodafone and like cases, as seemingly mistaken.
As reported in the media: The Narendra Modi administration has vowed to provide a non-adversarial tax regime and has asked the tax authorities to ensure that there is no harassment of taxpayers. The string of high profile tax cases include the issue of retrospective taxation had scared investors and prompted them to go slow on their investment plans in the country. The Modi government is keen to attract foreign investment to boost growth and is keen to provide a “predictable and transparent tax regime.”
To tersely put it,-as such, therefore, there is, if practically viewed, ostensibly nothing to be faulted in the noted change of direction adopted, albeit belatedly.
All said, there could be no denying that any point of issue, particularly, having cross border tax implications, does have the marked potential to keep perpetuating litigation; more so, endlessly, with no sizable advantage to government’s treasury, even in the long run, should all inter related aspects underlined by the government be kept in proper focus.
Foot Note: Though this article is old (2010), dug up from the archives,above comment as viewed in retrospect assumes every relevance should regard be had to the indicated recent developments.