Treaty overrides: India’s High Court comments
The PwC News Alert, issued today, highlights statements of India’s High Court re: treaty override situations in a recent decision of Vodafone South Ltd. These statements are significant in determining whether retrospective amendments can override treaty benefits. The link to the Alert is attached for reference:
Click to access pwc_news_alert_14_april_2014__vodafone_south_ltd.pdf
Important observations noted in the Alert:
- Sovereign power extends to “breaking” a tax treaty.
- Unilateral cancellation of a tax treaty through an amendment to domestic law, subsequent to conclusion of a tax treaty, is a recognized sovereign power.
- If , after the tax treaty came into force, an Act of Parliament was passed which contained a provision contrary to the tax treaty, the scope and effect of the legislation could not be curtailed by the tax treaty.
- India is not a signatory to the Vienna Convention on the Law of Treaties (Vienna Convention), although such principles have previously been relied on by several Indian courts as such concepts have been accepted as a source of international law.
The concept of treaty override is becoming a very significant issue, evidenced by various GAAR provisions that have been enacted in domestic law that override general tax treaty provisions. Additionally, recently released OECD draft on BEPS Action Plan 2 (22 March 2014 post) highlights the complex interplay of GAAR provisions with primary and linking mechanism proposals set forth to ensure consistency and uniformity.
In summary, the concepts of the Vienna Convention, combined with current events and complexities re: tax treaty override, merit special attention as tax audits become more complex leading to costly and lengthy appeals, while legislated issues become more subjective all leading to additional cases of double taxation and controversies based on uncertainties of international tax law.