International Tax Avoidance Issues: An Analysis of the Indian Law and Policy

The uncertainty and inconsonance in the international tax regime in India is adversely affecting the foreign investors. The author elaborates on the concept of tax avoidance, its significance in international taxation, and discusses certain anti-tax avoidance strategies. The article also discusses the significance of DTAAs. Next, analysis of judicial appreciation and response by the Supreme Court of India on the tax avoidance issue is done by a critique of some of its landmark decisions. This article also discusses use or abuse by India of retrospective (so-called, clarificatory) tax law amendments to deal with the international tax avoidance issue, with special reference to certain 2012 amendments to its Income Tax Act, 1961 inter alia to nullify the imprimatur of the Supreme Court in Vodafone case. It also examines the issue of use (against Cyprus) and potential misuse of the recently introduced tax law provisions permitting imposition of 'special measures in respect of transactions with persons located' in the jurisdictions notified by the Indian Government on the basis of lack of effective exchange of information with that country, under Section 94A of the said 1961 Act, leading to a possible unilateral treaty override of the relevant DTAAs. In the last part, it examines the veracity of the current position adopted by the Indian government in its informal responses to the Vodafone arbitration jurisdictionally challenging these proceedings, commenced under the India-Netherlands BIPA, claiming that the said BIPA excludes tax issues.