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India / Direct Taxes

Developments since 2009 and future outlook
7 August 2012 By Christian Ltkehaus, Rechtsanwalt (c.luetkehaus@clatlaw.com)

CONTENT OF THIS BRIEFING 1. Introduction 2. Chronology of events 3. Whats next and whats at hand? 3.1. Passing of the DTC 2010 3.2. Remaining key issues for foreign businesses and investors 3.2.1. Whats here at least for now 3.2.2. Whats likely yet to come/go away 4. Conclusion

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DISCLAIMER & COPYRIGHT All reasonable efforts have been made to ensure that the information contained in this document (Information) is correct as at the time of publication. However, the Information has been prepared by Rechtsanwalt Christian Ltkehaus for general information only. As such, it should not be relied upon in the handling of any specific situation. Legal advice should be sought from an appropriately qualified and experienced source before taking or refraining from any action based upon the Information. The distribution of this document is subject to copyright restrictions. For specific advice or further information on the topics covered in this document, please contact Rechtsanwalt Christian Ltkehaus (+420 7343 99100; c.luetkehaus@clatlaw.com)

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1. Introduction Since mid 2009, the Indian government has been proposing substantial changes to its direct tax laws. From here on it has been quite a roller-coaster ride for many stakeholders. A lot, and almost certainly enough, has already been said and written about the significant impact that the various changes would have on foreign investments in the country, on businesses both in and outside India, and even on other nations, above all Mauritius and Singapore. However, with it now having become (quite) clear that uncertainties will continue as the passing of the new Direct Tax Code will be delayed once again, it seems to be an opportune time for a brief chronology of events and a summary of the key notes, with a focus on the perspective of a foreign business or investor. If only to provide the reader with some flavour of complexity or probably also just of doing business in India (as usual).
NOTE I believe I should be quick in admitting that I may not be free from bias as far as the possibility of a positive development of the pending issues in Indian direct tax laws is concerned - with Finance Minister P. Chidambaram back at the helm of things. Here is why: (1) After I had moved to India in early 1997, it did not take long before I could note the first hugely positive development in the countrys tax laws: The budget for the financial year 1997/1998 and The Finance Act 1997. The budget was quickly titled Dream Budget and rightly so, from the perspective of both domestic and foreign stakeholders and its (predominant) author was Finance Minister P. Chidambaram, i.e. the same man who (again) returned to the finance ministry of India only last week, on 1 August 2012. (2) I met Mr. Chidambaram a few times personally in 2002 when he had returned to law practice between his first and second stint as Finance Minister (1997 to 1998; 2004 to 2008). The meetings were in connection with Mr. Chidambarams engagement as senior counsel in arbitration proceedings involving a German engineering company providing EPC services to an Indian project, both offshore and onshore. (I provided, inter alia, litigation management services in India and the UK to this German company, and also served on the board of directors of its Indian subsidiary for almost ten years) The briefings of Mr. Chidambaram and the hearing in this matter allowed me to witness this senior counsel demonstrate a tremendous level of energy, strategic genius, thoroughness and intelligence.

2. Chronology of events August 2009 The Government releases the first draft of the Direct Tax Code (DTC) for public comment, together with a discussion paper. Once in force, the DTC would replace the Income Tax Act, 1961, and the Wealth Tax Act, 1957. Selected key notes:

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In its effort to increase tax revenues, the Government pays close, one may even feel special, attention to (potential) foreign taxpayers and cross-border transactions. In particular the introduction of a General Anti-Avoidance Rule (GAAR) caused great concerns among businesses and investors across the globe and even among foreign governments, above all Mauritius and Singapore. Meant to serve as a universal tool to tackle aggressive (international) tax planning, in addition to transactionspecific special anti-avoidance provisions, the fundamentals of GAAR would of course not be new to the international audience.
[Including businesses and investors in Germany, where more or less general/ special avoidance rules and concepts such as those establishing substanceover-form requirements (German: Substanzerfordernisse), targeting abusive structuring (German: Gestaltungsmissbrauch), or providing for add-back taxation in connection with controlled foreign companies (German: Hinzurechnungsbesteuerung) have been around, and debated, for years.]

Compared with similar concepts applied in other countries, GAAR, as introduced in this first draft of the DTC, however, seems to confer exceptionally extensive powers on the tax authorities to make use of general anti-abuse rules. It may not come as a big surprise then that particularly serious concerns centre around as to whether the Indian tax authorities will refrain from making improper use of this powerful new tool. Several key provisions indicate a significant conflict between the proposed new direct tax law and agreements for the granting of relief or avoidance of double taxation entered into by India with various other countries (Treaties). For instance, provisions determining tax residency, place of accrual of income, and the existence of a permanent establishment. (As for the proposed conflict resolution provisions, please see paragraph 3.2.2. below)

June 2010 The Government releases a revised discussion paper, addressing comments received in response to the 2009 draft DTC and first discussion paper. Whilst, overall, this revised discussion paper suggests a more pragmatic and foreign investor friendly position, significant concerns submitted by both domestic and foreign stakeholders remain unanswered. Furthermore, the Government also used the discussion paper as an opportunity to introduce the Controlled Foreign Company (CFC) regime, aimed to tax income of a foreign company that is directly or indirectly controlled by a resident in India, in the hands of the respective Indian resident.

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August and September 2010 The Government presents the Direct Taxes Code Bill, 2010 (DTC 2010) to the Indian parliament. However, this session of Parliament ends without the bill being enacted. Instead, it was referred to the Standing Committee on Finance for further detailed examination. January 2012 The Supreme Court of India rules in favour of Vodafone in a USD 2.2 billion tax case, holding that the transfer of shares of a company incorporated outside India (CGP Investments Holdings Limited, Cayman Islands) from a seller residing outside India (Hutch Telecommunication International Ltd, Hong Kong) to a buyer also residing outside India (Vodafone International Holdings B.V., Netherlands) is not liable to capital gains tax in India, even if such transfer includes the indirect transfer of an asset in India (Hutch Essar Ltd). In its judgment, the Supreme Court points out, inter alia, the following: Section 9(1)(i) [of the Income Tax Act, 1961] cannot by a process of interpretation be extended to cover indirect transfers of capital assets/property situated in India. To do so, would amount to changing the content and ambit of Section 9(1)(i). We cannot re-write Section 9(1)(i). February 2012 The Central Board of Direct Taxes (CBDT) sets up a committee (CBDT Committee) with the objective to give recommendations for formulating the guidelines for proper implementation of GAAR Provisions under the Direct Tax Code Bill, 2010 and to suggest safeguards to these provisions to curb the abuse thereof (press release, Press Information Bureau, Government of India;http://finmin.nic.in/press_room/2012/Draft_Guidelines_GAAR.pdf). 09 March 2012 The Standing Committee on Finance (the Committee) headed by former Finance Minister Mr. Yashwant Sinha, who is also a senior leader of the BJP, currently the largest opposition party in India releases its report providing recommendations after collating the representations made by various stakeholders and the response of the Ministry of Finance. The Committee submitted over one hundred recommendations and the following general comments, which one may find particularly unflattering for the Government/Finance Ministry: With regard to the basic structure of the proposed new code "As regards the tax law being simple and comprehensible, the Committee find that the bulkiness of the statute has been sought to be reduced by creating large number of Schedules containing detailed provisions similar to the clauses in the main body of the Bill, creating

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more confusion than clarity, which may also compound the problems for the courts to interpret. The arrangement of chapters and sequence of clauses lack coherence. The Committee observe that the purpose of simplicity is not served by transferring substantive provisions to the Schedules, which may weaken the main clauses and also require frequent cross-referencing. Similarly, the Committee note that some definition provisions like Clause 314 have been sequenced towards the end of the Code, rather than at the very beginning as per established practice. The Committee therefore, desire that the Ministry should have a re-look at this structure and ensure that Chapters/clauses are selfcontained and easy to comprehend and make use of. The Committee would like the structure and content of Income Tax law to be more user-friendly. " With regard to the tax payer friendliness and the accountability of assessing officers The Direct Taxes Code has missed an opportunity to incorporate certain new features in the proposed tax regime of the Country which would make it make more tax payer friendly vis--vis the existing tax system. The aspect of accountability of assessing officers was not present in the existing tax administration of the Country. A negative fallout of the absence of accountability was that more often than not over-zealous assessing officers made exaggerated assessments and raised additional demands without sufficient grounds. This has been the major reason for complaints of harassment and unwarranted tax litigation. The Committee had commented on this aspect in their recent report on the Demands for Grants (2011-12) of the Department of Revenue. The Committee, therefore, desire that this lingering issue is appropriately addressed in the Code. With a view to enforcing accountability of the Department, the unreasonable tax demands raised and adjudicated, if finally quashed at higher levels, should be adversely reflected in the career dossier of the concerned officials. Proper disciplinary action should be taken against such officials responsible for irrational assessments. As the Committees recommendations may presently give the best indication as to what can be expected to (finally) become the new law, they are outlined in more detail in paragraph 3.2.2. below. 16 March 2012 Finance Minister Pranab Mukherjee who became the 13th President of India on 25 July 2012 presents the Union Budget for the next financial year, starting on 01 April 2012 and ending on 31 March 2013 (FY 2012/2013), and introduces The Finance Bill, 2012. Selected key notes: DTC not to come into force in FY 2012/2013. GAAR nevertheless to be introduced in FY 2012/2013, by way of an amendment to the Income Tax Act, 1961; scope of the GAAR
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provisions introduced in the Finance Bill even wider than suggested in the DTC 2010, and burden of proof substantially shifts to the (potential) taxpayer. Not ready to accept defeat in the Vodafone case, or in similar cases, e.g. SAB Miller and Kraft, the Government (or rather the Finance Ministry?) strikes back, inter alia by being quick in pushing for an even stronger GAAR scheme and by introducing amendments, carefully labeled clarificatory amendments, to the Income Tax Act, 1961, with retrospective effect in fact from as far back as the coming into force of the act in 1962. Clarificatory amendments in particular provide for a different interpretation of Sec. 9 (1) (i) of the Income Tax Act, 1961. (And now go back and again read the above extract from the Supreme Court ruling in the Vodafone case.) Further retrospective amendments introduced, for instance with regard to the taxation of royalties paid to non-residents going back as far as 1976.

May 2012 The Finance Minister introduces a revised Finance Bill 2012 to Parliament, and presents the amendments in a speech. The revised Finance Bill 2012 is subsequently passed by Parliament, signed by the President and deemed to have come into force, as Finance Act, 2012, on 1 April 2012. Key notes: GAAR provisions to come into effect only one year later, i.e. on 01 April 2014. Long term capital gain arising from sale of unlisted securities in the case of all non-resident investors, including private equity investors, to be taxed at 10%. Tax exemption on long term capital gains extended to the sale of unlisted securities in an IPO. 5% rate of withholding tax on interest payable to foreign lender on external commercial borrowings extended to all businesses; rate also applicable for funds raised through long term infrastructure bonds. Exemption from withholding tax and Dividend Distribution Tax on income credited or paid by VCF/ VCC to investors. (as has been the case under the earlier law) Consideration for issue of shares in excess of the fair market value received by i) a Venture Capital Undertaking from a VCC or a VCF, or ii) a company from a class or classes of persons as may be notified by the Central Government shall not be treated as income. (the latter looking in particular at share premiums paid to individual early stage investors, such as family, friends and angel investors)
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Additional statements in the Finance Ministers speech on 7 May 2012, not (necessarily) reflected in the Finance Act 2012: - [Retrospective] clarificatory amendments not to override the provisions of Double Taxation Avoidance Agreements (DTAA) which India has with 82 countries. It would impact those cases where the transaction has been routed through low tax or no tax countries with whom India does not have a DTAA. - The retrospective clarificatory amendments now under consideration of Parliament will not be used to reopen any cases where assessment orders have already been finalized. - Remove the onus of proof entirely from the taxpayer to the Revenue Department before any action can be initiated under GAAR. 26 June 2012 Prime Minister Manmohan Singh assumes charge of the finance ministry after Pranab Mukherjee resigned in order to run for president of India. 28 June 2012 The CBDT Committee releases its first draft guidelines regarding the implementation of GAAR. As it is safe to assume that these draft guidelines will undergo further revisions before they can become effective, just one note here: Concerns raised by various stakeholders (as stated in the CBDT Committee report): section 96(2) [of The Finance Act 2012] provides that an arrangement shall be presumed to have been entered into, or carried out, for the main purpose of obtaining a tax benefit, if the main purpose of a step in, or a part of the arrangement is to obtain a tax benefit, notwithstanding the fact that the main purpose of the whole arrangement is not to obtain a tax benefit. In view of this provision where only a part of the arrangement is to obtain a tax benefit, the tax authorities will treat the whole arrangement as an impermissible arrangement. CBDT Committee reply to this in its report: In order to allay the apprehensions of the taxpayers in this regard, the committee recommends that it must be clarified in the Rules that :Where only a part of the arrangement is impermissible, the tax consequences of Impermissible Avoidance Arrangement will be limited to only that part of the arrangement.

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13 July 2012 Prime Minister Manmohan Singh sets up a committee (the Parthasarathy Shome Committee) to review and finalise GAAR. 30 July 2012 Prime Minister Manmohan Singh expands the scope of review by the Parthasarathy Shome Committee to include also the issue of taxation of portfolio investors and Foreign Institutional Investors (FIIs), particularly when the investment is made through a registered stock exchange in accordance with SEBI guidelines and purely in the form of portfolio investment (quoted from press release, Press Information Bureau, Government of India; http://pib.nic.in/newsite/erelease.aspx?relid=85331). A question still on top of the agenda of Foreign Institutional Investors/FIIs and other foreign investors, including holders of participatory notes/P-notes, and hence also of great importance for Indias foreign currency reserves. 30 July 2012 Prime Minister Manmohan Singh sets up a committee [the Rangachary Committee] to review Taxation of Development Centres and the IT Sector. The Committee will engage in consultations with stakeholders and related government departments to finalise the Safe Harbour provisions announced in Budget 2010 sector-by-sector. (quoted from the respective press release published by the Press Information Bureau, Government of India; http://pib.nic.in/newsite/erelease.aspx?relid=85331). 01 August 2012 Mr. P. Chidambaram returns to the office of Finance Minister. 06 August 2012 Finance Minister P. Chidambaram confirms review of the recently introduced direct tax provisions that have a retrospective effect: I have also directed a review of tax provisions that have a retrospective effect in order to find fair and reasonable solutions to pending as well as likely disputes between the tax departments and assessees concerned. 3. Whats next and whats at hand? 3.1. Passing of the DTC 2010 In view of the recent timing of events, the ongoing reviews of various tax provisions as well as the Committees recommendations, it seems safe to expect that the DTC 2010 will miss the Monsoon Session of the parliament. It would in this case have to be seen whether the bill gets enacted in this years Winter Session of Parliament.

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3.2. Remaining key issues for foreign businesses and investors 3.2.1. Whats here at least for now For now, The Income Tax Act, 1961 continues to be the statutory law on direct taxes in India. As set out above, certain amendments introduced by the Finance Act, 2012, however, are presently under review. Most notably the provisions/clarificatory amendments that have a retrospective effect, and the GAAR provisions; the latter, of course, are in any case meant to come into force only with effect of 1 April 2013. 3.2.2. Whats likely yet to come/go away The key proposal at hand is still the DTC 2010, and one may assume that the recommendations expressed by the Committee in its report submitted on 9 March 2012 are the best indication of what is yet to change before a new direct tax code replaces the Income Tax Act, 1961. After all, in order to finally become law, the DTC 2010 (or even a DTC 2012, or DTC 2013, as the case may be) would at some stage have to be passed by Parliament and the Committee was headed by a senior BJP/opposition leader, and at the same time comprised of a majority of members of the ruling alliance. Key recommendations, from the perspective of a foreign business/investor, of the Committee include the following: Tax rate for and residency of companies - The Committee do not recommend any change in the proposed rate of 30% corporate tax for companies. - [] several aspects of definition of Place of Effective Management (POEM) are unclear and provide room for uncertainty. The reference to Executive Directors (ED) in the POEM definition leads to ambiguity, as this term has not been defined either in the Code or in the Companies Act, 1956. Further, inclusion of officer in the second limb of the definition will increase uncertainty, as commercial and strategic decision making is spread at various levels in modern day organizations. Further, determining POEM on the basis as to where such officers perform their functions is not an objective criteria of deciding fiscal residency. The Committee, therefore, recommend that the definition of POEM may be amended in the light of the afore-stated reasons. The reference to ED or officer may be removed from the definition of POEM and residency should instead be determined on the basis of internationally accepted standards and judicially settled principles, where the focus is on the place, where the key management and commercial decisions as a whole are made or where the head and brain of the company is situated.

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Branch Profit Tax and Permanent Establishments - While welcoming in principle the proposal in the Code for levy of Branch Profit Tax on foreign companies on their income attributable directly or indirectly to their permanent establishment or an immovable property situated in India, the Committee would recommend that it may be suitably clarified that the concept of a branch and Permanent Establishment (PE) for direct tax purposes would remain aligned with bilateral tax treaties/agreements. - The Committee would also expect that any ambiguity in the Clause obfuscating the fulfillment of the objective of introducing this new levy particularly to bring in equity between domestic and foreign companies is removed. Transfer pricing - [] hardship to the tax payers should be avoided by excluding purely commercial transactions between unrelated parties from [the] purview [of the transfer pricing regulations]. - [] a monetary threshold may also be prescribed for granting exemption from these regulations to small and economically insignificant transactions. - [] the proposed mechanism for framing Advance Pricing Agreements (APAs), specifying the manner in which arms length price is to be determined in respect of international transactions should be entrusted to an independent agency appointed by the Central Board of Direct Taxes consisting of technical and judicial Members, who will advise the Board on APAs in order to ensure that the APAs reflect the prevalent commercial practices/ realities. Procedural safeguards to fortify the interest of applicants may be put in place in the scheme guidelines. [] Further, DTAAs [i.e. Treaties], already concluded should be suitably amended to include APAs and in future, the APAs should be included in the DTAAs. Withholding tax - [] should not apply to payments to non-residents, as potential requirement of all non-resident persons to obtain Permanent Account Number is against the generally accepted international tax principles of respecting the withholding tax rates stated in tax treaties. - The Committee agree with the Ministrys proposal to expand the scope of definition of royalty in view of the prevailing market situation. [Thereby confirming that consideration paid to nonresidents for the use or right to use of transmission by satellite, cable, optic fiber or similar technology should be made subject to withholding tax.]
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GAAR - The GAAR proposals seek to empower the Income Tax Authorities, namely the Commissioners to invoke the applicability of the provisions and shifts the onus to the taxpayer. The Ministry have stated that appropriate guidance for applying these provisions will be provided to tax authorities through guidelines. The Committee however find that some serious concerns have been expressed by a range of stakeholders on the GAAR proposals. In view of the apprehensions expressed by different stakeholders on the applicability of GAAR proposals, the Committee would recommend that the Ministry and the CBDT should seek to bring greater clarity and precision to the scope of the provisions. The provisions to deter tax avoidance should not end up penalizing tax-payers, who have genuine reasons for entering into a bonafide transaction. Further, the onus of proving tax avoidance should rest with the Department and not with the tax payer. - It has been proposed that the orders of the Commissioner invoking GAAR provisions will be subject to approval of Dispute Resolution Panel (DRP) which is a collegium of three Commissioners of Income Tax. Since this is a purely departmental body, it will be fair and just, if the review is done by a more independent body. - Suitable grandfathering provisions may be made to protect the interest of the tax- payers who have entered into structures / arrangements under the existing law. - Uncertainties with regard to applicability of tax treaty provisions should be removed so that Indias credibility as a reliable treaty partner is not affected. - The proposals should not lead to any fiscal uncertainty or ambiguity. It should be ensured that any of the proposals does not pave the way for avoidable litigation, which is already at a very high level in tax matters. - The GAAR proposals may be amended accordingly and the guidelines framed keeping in view the afore-stated concerns. - The Committee desire that these guidelines should be laid in Parliament along with the duly amended Direct Taxes Code Bill. - Some of the definitions of terms connected with the provisions mentioned above [i.e. the GAAR provisions] relating to international taxation and anti-avoidance that have been introduced in the Code are found to be open-ended and ambiguous, leaving scope for avoidable litigation.

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- The Committee therefore desire that the Ministry should review the relevant clauses governing these [GAAR] proposals with a view to circumscribing and minimising the extent of discretionary powers made available to the tax authorities by way of clear-cut rules and regulations. Capital Gains and indirect (offshore) transfers of assets situated in India - Ministry may explore the possibility of abolishing the Securities Transaction Tax (STT), while correspondingly calibrating the Capital Gains Tax regime both short term and long term. Accordingly, the distinction between listed and unlisted securities should be removed. It should also be ensured that companies do not escape paying capital gains tax on the basis of DTAAs [i.e. Treaties]. - The Committee note that [] seek to tax income of a nonresident, arising from indirect transfer of capital asset, situated in India. The Committee recommend that exemption should be provided to transfer of small share-holdings and transfer of listed shares outside India, because applying these provisions in such instances will cause hardship to the non-resident shareholder. Further the criteria for computing Fair Market Value (FMV) of assets at any time during 12 months preceding the transfer date being rather onerous, the Committee would recommend that it would be fair if comparison could be made on a particular date like the balance sheet date immediately preceding the date of transfer. Further, exception may also be provided to intra group restructuring outside India []. - [] deeming all income of Foreign institutional investors from sale of securities as capital gain artificially recharacterizes their income. The classification of an item of income to be taxed under the Code should be based on the nature of income. However, the proposed classification under the Code ignores key factors like volume, frequency and size of sale and purchase transactions, pattern of trading activity, etc. which have been followed by the Courts in determining the nature of income from sale of securities. Accordingly, the Committee recommend that the security held by foreign institutional investor should not be included in the definition of investment asset. Controlled Foreign Company - While recognizing the need and rationale for introducing the CFC framework as an anti-avoidance measure to bring to tax passive incomes of foreign entities particularly in a tax haven or very low tax jurisdiction, controlled directly or indirectly by Indian entities, the Committee would recommend that suitable amendment may be carried out [] in order to clarify that foreign tax credit in respect of actual tax paid in any other territory will be included in

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the tax paid []. A mechanism for granting tax credit should be allowed for the foreign income tax paid by CFC. The control tests [] presently widely defined by way of terms such as directly or indirectly, dominant influence and decisive influence require to be more precisely defined in scope so as to avoid ambiguities and unnecessary litigation arising therefrom.

- As doubts have arisen on the taxability of profits of a CFC, it may be clarified that the attributable income of the persons resident in India, who are exercising control over the CFC, should be only such amount of current profits of a CFC, which are capable of being distributed as per the applicable laws of the foreign country. On the whole, the Committee are of the view that since the triggering points for invoking CFC regulations are so many, cumulative or combined trigger of two or three points / criteria should be stipulated instead of merely a single-point trigger.

- [] shares held in a CFC should be excluded from the scope of wealth tax. Others - [] to clearly provide that import freight received by non-resident engaged in shipping business outside India is not deemed to accrue in India, as agreed to by the Ministry. - ESOPs [i.e. Employee Share Option Programmes], as a perquisite, should be taxable only at the time of sale / alienation and not at the time of vesting. One point of particular interest to foreign stakeholders is certainly the issue of treaty-override, i.e. how conflicts between domestic tax laws and Treaties will be resolved. Here, the worst seems to be over. The DTC 2010 did away with the later-in-time doctrine initially proposed in the 2009 draft DTC, which would have allowed for (at least the attempt of) a full treaty override merely because a conflicting provision under the DTC was introduced later than the concerned provision in the Treaty. In general, taxpayers will therefore continue to be entitled to be assessed in accordance with the provisions under a Treaty, if these are more beneficial than the Indian tax law provisions. However, the DTC 2010 still provides for a limited tax treaty override, for instance when the GAAR provisions are invoked or when Branch Profits Tax is levied, which still has the potential to open up a Pandora's box, in particular when considered together with the ambiguities surrounding the existence of a Permanent Establishment under the DTC on the one hand and all typical Treaties on the other. An issue also reflected in the Committees recommendations. [To be fair, one should, however, note here that the lawmaker in India is not the only one walking on thin ice in this area: For instance Germany, too, started showing a more and more aggressive approach to treaty override. The German Federal Tax Court (BFH) in fact even suspects (at least) one of the treaty overriding provisions in the German income tax act ( 50d VIII
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EStG) of being unconstitutional, and recently requested a judicial review by the German Federal Constitutional Court (BVerfG), which is expected to lead to a far-reaching review of all the treaty overriding legislation in general.] 4. Conclusion Except, of course, for the significantly harmful effect that a considerably large number of tax proposals introduced since mid 2009 had on (foreign) investor confidence, it would seem that nothing has been lost as of now: i) amendments incorporated in the revised Finance Bill 2012 which became law under The Finance Act, 2012 took care of some part of the controversial new provisions initially proposed in this years budget, ii) most of the controversial provisions that in fact have become law as a result of The Finance Act, 2012 are already being reviewed by expert panels, and it seems highly likely that the worst will be reversed, and iii) the Committees recommendation with regard to the DTC 2010, i.e. the proposed new legislation, give reason to believe that here, too, the most controversial provisions will disappear or at least reasonably softened. Most importantly, at this stage, both the Prime Minister and the new Finance Minister gave clear indications that they have a deep understanding of legitimate concerns of Indian businesses and foreign stakeholders alike, and are committed to ensure direct tax laws in line with internationally accepted principles. To again quote from Finance Minister Chidambarams speech held on 6 August 2012: "Since investment is an act of faith, we must remove any apprehension or distrust in the minds of investors". [] "Clarity in tax laws, a stable tax regime, a non-adversarial tax administration, a fair mechanism for dispute resolution and an independent judiciary will provide great assurance to investors. We will take corrective measures wherever necessary. [] So, let us (once again) be patient and hopeful but also reasonably cautious. For now, it is probably still all just doing business in India as usual.

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