With the government firm on taxing cross-border acquisition deals of the likes of Vodafone through enabling retrospective amendment of the relevant provisions of the Income Tax Act, the Centre, on Monday, highlighted that the buyout of Hutchison's stake in Hutchison-Essar by the British telecom major was an instance of misusing corporate structure to avoid taxes. The White Paper on black money, tabled in the Lok Sabha by Finance Minister Pranab Mukherjee, said: “The Vodafone tax case provides an instance of the misuse of corporate structure for avoiding the payment of taxes.” The paper pointed out that the Hutchison Group sold its entire business operation in India to Vodafone in February, 2007, for a consideration of $11.2 billion and the sale transaction was effected through transfer of a solitary share of a company in Cayman Islands. “In this case, the Hutchison Group had made investments in India from 1992 to 2006 through a number of subsidiaries having ‘separate corporate personality' but which were essentially post box companies based in the Cayman Islands, British Virgin Islands, and Mauritius.” Incidentally, all the three locations are low or no tax jurisdictions. “When the tax authorities requested the accounts of the said company, the answer given was that as per Cayman Islands law, the company was not required to prepare its accounts,” the paper said. The paper noted that although corporate structuring is a legitimate means of bringing together factors of production in a way that would facilitate business and enterprise and help the economy, “an artificial personality can also be created of a corporate entity to conceal the real beneficiaries ... Opaque structuring through creation of multiple entities that own each other and the secrecy granted by certain jurisdictions facilitate such misuse.”
