India Issues Re-Assurances over Tax and Retroactive Legislation

India’s Finance Minister Pranab Mukherjee has scotched media reports concerning the intentions of India’s new tax regulations, and has pulled back on GAAR (general anti-avoidance regulations) until April 2013. Additionally, he has clarified that retrospective tax concerns over deals conducted overseas in which Indian assets are transferred would not be applicable.

This clears the path for Vodafone’s controversial takeover of Hutchinson Whampoa’s India business in 2007 and confirms a Supreme Court ruling on the matter. Mukherjee stated that retrospective clarifications would not override double tax agreements and that cases where tax assessment orders have already been finalized will not be reopened.

“We have always maintained that the government’s good sense would prevail and that too much was made of the potential for retrospective tax in India,” comments Chris Devonshire-Ellis, principal of Dezan Shira & Associates.

Markets have reacted positively to the news and have lifted stocks significantly following a four month low due to the uncertainty.

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