The Supreme Court ruling in the Vodafone case could be act as a trigger for NRI investments into Kerala, according to consultants KPMG.
From an NRI perspective, the ruling does throw open a window of opportunity for suitably structuring the investments, according to Mr Sherry Samuel Oommen, head of KPMG's tax practice in Kerala.
The rule of law and the dictum of certainty in tax treatment would go to boost NRI investment into the State, Mr Sherry Oommen told
Foreign Direct Investments (FDI) into the State and the region of Lakshwadeep combined from January 2000 to October 2006 added up to no more than Rs 340 crore.
This compared with Rs 8,500 crore logged by neighbouring Tamil Nadu during the same period.
Thus, there is clearly an opportunity for growth, which could clearly propel infrastructure development in the State. By making the ‘right choice,' the Supreme Court ruling establishes the country's commitment and respect to certainty and stability in its fiscal system.
From a macro perspective, the ruling will allow foreign investors to redeem their confidence in India's respect for the “rule of law,” he said.
The court's intervention in the 2G scam and the black money trail has indeed been an inflection point in country's overall polity and governance. Whilst upholding the non-taxability of sale of shares of a Cayman Island entity, the Supreme Court upheld the well-settled principle that tax payers are free to choose lawful arrangements which suits business and commercial purpose.
CONFLICTING VIEW
This lays to rest the perceived conflicting view on tax planning, which was discussed in the oft-quoted ruling of the Supreme Court in the case of McDowell.
Mr Oommen said the true nature of a transaction can be determined by ‘looking at' the legal arrangement entered into and carried on.
Thus, the court's observation as to respecting the legitimate tax planning should reaffirm the beneficial tax treatment for investing through favourable treaty jurisdictions like Mauritius — another area of a constant flip-flop by the Indian tax administration. Mr Oommen also mentioned the distinction between ‘pre-ordained transactions' for tax avoidance and transactions which evidence an ‘investment participation' in India.
The Supreme Court had also discussed factors towards ascertaining whether a transaction is preordained or not.
These included duration during which the holding structure existed; the period of business operations; the taxable income generated during the period of operations; and the timing of the exit, among others.
SESSION HELD
Earlier, Mr Sherry Oommen had chaired a discussion on the implications of the Vodafone ruling for investments into the State.
It was organised jointly by the Kozhikode branch of the Institute of Chartered Accountants of India and the Kochi branch of The Institute of Cost Accountants of India.
Various practicing professionals and leading NRI investors in the Malabar and Ernakulam regions attended.