TEI opposes retroactive India legislation: April 6, 2012.

• Position: Tax Executives Institute

On April 6, 2012, Tax Executives Institute submitted the following comments to the Indian Prime Minister and other senior Indian officials expressing concern over the proposed retroactive effect of certain tax provisions of proposed Finance Bill 2012. The comments were prepared under the aegis of TEI's European Direct Tax Committee, whose chair is Anna Theeuwes of Shell International B.V. Eli J. Dicker, TEI Chief Tax Counsel, coordinated the preparation of the comments.

On behalf of Tax Executives Institute, Inc., I am writing to express our concern regarding certain tax provisions proposed in Finance Bill 2012. In particular, the Institute is alarmed by the proposed retrospective effect of the legislation.

Tax Executives Institute (TEI) was founded in 1944 to serve the needs of in-house tax professionals. With 7,000 members worldwide, today the organisation has 55 chapters in Asia, Europe, and North America, collectively representing 3,000 of the largest companies around the globe. As the preeminent association of business tax professionals worldwide, TEI has a significant interest in promoting fair tax laws and policies at all levels of government TEI has a particular interest in legislation that would upset the settled expectations of taxpayers. TEI has long opposed retroactive tax legislation as unfair to otherwise compliant taxpayers and harmful to the ability of businesses to plan and conduct their operations in reliance on the legal rules in effect when business decisions are made. (1) The uncertainty resulting from the retrospective aspects of Finance Bill 2012 could adversely affect the willingness of businesses to commence or continue operations in India.

For a tax system to be fair and perceived as being fair, taxpayers must be able to rely on the law in effect when business transactions take place, expenditures are incurred, and other taxable events occur. Therefore, except in extreme circumstances, tax legislation should be prospective.

TEI recognizes that a government is free to change its tax policies, but fairness demands that the change should be prospective where the changes will have a significant negative financial effect on taxpayers. Moreover, while there are exigent circumstances where a government can exercise its authority to change the tax laws retroactively, this power should assuredly be exercised with restraint. Regrettably, the appropriate restraint is missing from Finance Bill 2012, some provisions of which...