Retrospective Taxation

Subject:Economy

Context:

The Vodafone Group has won a long pending arbitration case against the Indian tax department’s demand of Rs 20,000 crore on a retrospective basis at the Permanent Court of Arbitration in Hague

Concept:

• Retrospective taxation allows a country to pass a rule on taxing certain products, items or services and deals and charge companies from a time behind the date on which the law is passed.
• Countries use this route to correct any anomalies in their taxation policies that have, in the past, allowed companies to take advantage of such loopholes.
• While governments often use a retrospective amendment to taxation laws to “clarify” existing laws, it ends up hurting companies that had knowingly or unknowingly interpreted the tax rules differently.