New Delhi: US Treasury Secretary Timothy Geithner raised the issue of proposed tax changes in India with finance minister Pranab Mukherjee, after US trade and lobby groups raised concerns that the plans will hurt investors.

Geithner and Mukherjee discussed the topic at a meeting between Indian and US officials in Washington on 19 April, the finance ministry said in a note on Friday.

Mukherjee said in India’s 16 March budget he will seek to change the law to permit taxation of overseas deals in which an Indian asset is transferred, and that he also wants to clamp down on tax avoidance.

Timothy F. Geithner, US treasury secretary. Bloomberg

Mukherjee said the plans were not substantive but clarificatory in nature, according to Friday’s note, which added Indian laws mandate that firms making capital gains from the assets located in India have to pay taxes either in their country of origin or in India.

“Geithner said certain tax provisions in India’s fiscal year 2013 budget have raised significant concern among US industry and dampened enthusiasm about India’s investment climate," according to an emailed statement from Treasury spokeswoman Kara Alaimo. The treasury department is examining India’s proposed tax provisions to determine their impact on the US-India bilateral income-tax treaty, it said.

Geithner encouraged finance minister Mukherjee to reassure foreign investors that India will continue to welcome foreign capital, by advancing important economic reforms that will increase opportunities for bilateral trade and investment, and strengthen India’s business climate through greater transparency and predictability, the statement said.

The proposed changes follow a ruling in January by India’s Supreme Court that Vodafone Group Plc doesn’t have to pay $2.2 billion in tax on its purchase, conducted offshore, of the Indian business of Hutchison Whampoa Ltd in 2007. Vodafone has threatened to pursue international arbitration if India proceeds with the plans. The telecom operator’s Dutch unit served a notice of dispute to the government, invoking an investment treaty between India and the Netherlands. Vodafone conducted the transaction at issue using a Dutch subsidiary.

Government estimates show Indian growth cooled to 6.9% in the 12 months through March, the least in three years. The slowdown has sapped tax revenues even as subsidies spur spending, leaving the $1.7 trillion economy with the widest budget deficit among the biggest emerging markets.

Shobhana Chandra and Ian Katz contributed to this story.

US Treasury Secretary Timothy Geithner raised the issue of proposed tax changes in India with finance minister Pranab Mukherjee, after US trade and lobby groups raised concerns that the plans will hurt investors.

Geithner and Mukherjee discussed the topic at a meeting between Indian and US officials in Washington on 19 April, the finance ministry said in a note on Friday.

Mukherjee said in India’s 16 March budget he will seek to change the law to permit taxation of overseas deals in which an Indian asset is transferred, and that he also wants to clamp down on tax avoidance.

The proposals may lead to retroactive tax bills for periods of as much as 50 years and deter foreign investment, the US groups said in an 17 April letter to Geithner, urging him to raise the matter with India.

Mukherjee said the plans were not substantive but clarificatory in nature, according to Friday’s note, which added Indian laws mandate that firms making capital gains from the assets located in India have to pay taxes either in their country of origin or in India.

“Geithner said certain tax provisions in India’s fiscal year 2013 budget have raised significant concern among US industry and dampened enthusiasm about India’s investment climate," according to an emailed statement from Treasury spokeswoman Kara Alaimo. The treasury department is examining India’s proposed tax provisions to determine their impact on the US-India bilateral income-tax treaty, it said.

Geithner encouraged finance minister Mukherjee to reassure foreign investors that India will continue to welcome foreign capital, by advancing important economic reforms that will increase opportunities for bilateral trade and investment, and strengthen India’s business climate through greater transparency and predictability, the statement said.

The proposed changes follow a ruling in January by India’s Supreme Court that Vodafone Group Plc doesn’t have to pay $2.2 billion in tax on its purchase, conducted offshore, of the Indian business of Hutchison Whampoa Ltd in 2007. Vodafone has threatened to pursue international arbitration if India proceeds with the plans. The telecom operator’s Dutch unit served a notice of dispute to the government, invoking an investment treaty between India and the Netherlands. Vodafone conducted the transaction at issue using a Dutch subsidiary.

Government estimates show Indian growth cooled to 6.9% in the 12 months through March, the least in three years. The slowdown has sapped tax revenues even as subsidies spur spending, leaving the $1.7 trillion economy with the widest budget deficit among the biggest emerging markets.

Shobhana Chandra and Ian Katz contributed to this story.

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