Much has been said about the Indian tax department’s attempt to tax an issue of shares by Shell’s Indian subsidiary to its foreign parent. This forced conversion of a capital receipt into an income comes unfortunately at a time when India is still struggling with the Vodafone matter.
Despite a many-year court battle and a resounding victory at the Supreme Court, Vodafone lost the war on retroactive amendments to tax law. Now, a government embarrassed by its own actions doesn’t know what to do—to tax Vodafone or not. The tax department is clear—it wants to win a lost case. But ruling politicians are struggling to find a solution that brings in revenue without denting India’s image.
Interestingly, many foreign tax experts, who were once firmly opposed to India taxing Vodafone’s offshore transaction, have in recent times softened their stance. That’s because their own countries are facing a similar Hobson’s choice—between encouraging investments and garnering revenue.
So, when one newspaper headline positioned India as anti-FDI, on account of its tax actions against Vodafone, Nokia, Shell and others, I thought you would find it interesting to know that other countries are being accused of the same.
A few months ago, events in the UK eclipsed India’s Vodafone moment of shame. Starbucks UK, compelled by public and political pressure, committed to pay a voluntary tax of 10 million pounds each year for the next 2 years. What’s a voluntary tax, you ask? Well, Starbucks UK will not claim the deductions for royalties and inter-company charges that UK tax law entitles it to. Critics say these charges are a big reason why Starbucks declared a profit (and hence paid tax) only 3 times in its 14-15 years in the UK.
Before you get all righteously indignant about a company being forced to pay a voluntary tax, sample this excerpt from the UK Parliamentary Accounts Committee hearing:
Committee Chair Margaret Hodge: It just doesn’t ring true. The two are inconsistent. You have run the business for 15 years and you are losing, and you are carrying on investing here. It just doesn’t ring true.
Troy Alstead (Starbucks): We are committed to this marketplace and to our customers. We know that to be a successful...
Committee Chair Margaret Hodge: Yes, but you are losing money.
Troy Alstead (Starbucks): To be a successful global company we have every intention to make this market successful and profitable.
Committee Chair Margaret Hodge: And you have tried for 15 years