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Retrospective tax law: US seeks reassurance from Pranab

The Union Budget 2012-13 had outlined a proposal to enable tax authorities to make retroactive claims on overseas corporate deals and bring in new measures to reduce avoidance of paying Indian taxes.

BT Online Bureau | April 20, 2012 | Updated 11:58 IST

US Treasury Secretary Timothy Geithner, reflecting concerns in the US business community, pressed Finance Minister Pranab Mukherjee for reassurances that India remains open to foreign investment.

"In this regard, the Secretary noted that certain tax provisions in India's fiscal year 2013 Budget have raised significant concern amongst US industry and dampened enthusiasm about India's investment climate," Treasury spokeswoman Kara Alaimo said.

Union Budget 2012-13, announced in March, had outlined a proposal to enable tax authorities to make retroactive claims on overseas corporate deals and bring in new measures to reduce companies' ability to avoid paying Indian taxes.

FULL COVERAGE: UNION BUDGET 2012-13

Critics say the measures make India less attractive to foreign investors.

The Treasury Department is also "examining India's proposed tax provisions to determine their impact on the US-India bilateral income tax treaty," Alaimo said.

The US Chamber of Commerce, the US-India Business Council, the Financial Services Forum and nine other US business groups wrote to Geithner on Tuesday, urging him to press Mukherjee on the issue.

"These proposed amendments will have a significant negative effect on our companies, customers and shareholders, and investors in India," the groups said.

The recent Budget proposal would retroactively impose a capital gains tax on merger and acquisition deals conducted overseas where the underlying asset is located in India.

It would amend 50-year-old tax laws to allow India to pursue taxes on long-concluded transactions.

"Despite assertions by Indian officials that these retroactive provisions are in accordance with global tax practices, the amendments are much broader in scope and extend for a far longer period of time," the US groups said.

Mukherjee is in Washington for the annual spring meetings of the World Bank and International Monetary Fund.

An international coalition of business groups also wrote to Indian Prime Minister Manmohan Singh in late March to complain about the proposed tax changes, which they warned could discourage further investment in India.

Geithner encouraged Mukherjee "to reassure foreign investors that India will continue to welcome foreign capital, by advancing important economic reforms that will increase opportunities for bilateral trade and investment and strengthen India's business climate through greater transparency and predictability," Alaimo said.

With agency inputs

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