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IT Department is looking into other cross-border M&A
September, 14th 2010

After winning the legal battle with Vodafone in a tax evasion case, the Income Tax Department is looking into other cross-border mergers and acquisitions.

Central Board of Direct Taxes Chairman S S N Moorthy today said the department was closely examining similar deals which had happened in the recent past and led to possible tax evasion.

We are in the process of investigating other cases. They are in various stages of processing, Moorthy told reporters on the sidelines of a seminar organised by industry body Assocham. He, however, refused to specify the cases.

In the past, similar transactions have been seen in case of companies like Vedanta, Sesa Goa, AT&T, General Electric and Fosters. British firm Cairn Energy has already agreed to pay tax in India as well as the UK on selling its stake in Cairn India to Vedanta Resources for $6.65 billion to $8.48 billion. Depending upon the size of the stake sale, the tax liability could range between $868 million and $1.1 billion.

Last week, the Bombay High Court had ruled that the Income Tax Department had the jurisdiction to tax Vodafones acquisition of Hong Kongs Hutchison Telecommunications stake in Hutch Essar for over $11 billion in 2007.

The tax on the transaction could be around Rs 12,000 crore, including interest.

According to experts, the high court said Vodafone was a peculiar case and that left some room for other companies, provided they were able to distinguish their facts from the Vodafone case.

The court had asked the tax department not to act on its order for eight weeks. Moorthy said the officials would abide by the order and not proceed with any tax notice before the expiry of this period.

Moorthy also said that the Safe Harbour rules, which would exempt Indian units of foreign companies from detailed scrutiny of tax officials while filing returns, were at an advanced stage of consideration.

It will be a very favourable programme... We are working on it and it will be in place as early as possible," he added.

Regarding outlook on direct tax collections, Moorthy said collections, especially on the corporate side, would pick up in September.

Indias direct tax mop-up during April-August grew 13.91 per cent to touch Rs 1,00,112 crore. Corporation income-tax collections increased 17.05 per cent to Rs 57,750 crore.

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