CC on the rack in India for back taxes from energy instructions

An Indian tribunal has found that Clifford Chance is liable for high rates of tax in India for all the work it carried out in relation to three energy-related projects

According to a judgment seen by The Lawyer of the Income Tax Appellate Tribunal in Mumbai, the firm now faces being taxed on its total earnings of £1.7m arising out of the transaction.
The firm, which will appeal the decision, claimed that it was not liable under the provisions of the Double Taxation Avoidance Agreement (DTA), as it did not work for more than 90 days within a financial year, and liability kicks in only after this period. This was rejected by the tribunal.
The tribunal also found that there was “an absence of evidence” that the firm’s partners visited India for reasons other than in relation to the projects. This was relevant in terms of the number of days partners spent in India working on the projects.
Claims that some of the work was carried out outside India was also rejected by the tribunal, which concluded: “If some minor work was done outside India, it was only of allied and incidental nature.”
Clifford Chance‘s counsel argued that the DTA, which has been signed between India and the UK to promote cooperation on tax, was aimed at modernising India’s industry by encouraging investment and technology.
The case has sent a warning signal to those in the legal community who thought they would be exempt from being taxed, both in this country and the jurisdiction where a transaction took place.
Linklaters, which faces similar liabilities in India to Clifford Chance, has sidestepped litigation. However, its cause has been supported by the Inland Revenue, which has been in talks with the Indian tax authorities and the Law Society, which has made representations to the Indian High Commissioner.
According to a source at Linklaters, the firm is close to reaching a settlement. The spokesman refused to discuss this any further.
The transactions that Clifford Chance is tax-liable for took place between 1997-98 and relate to the Ravva Oil & Gas Fields projects, the Vemagiri Power project and the Vizag and Bhadravati Power Station projects.
The tribunal’s vice-president said that Clifford Chance did not file tax returns “in the normal course” for the year in which the firm carried out these transactions. The firm’s response in March 1998 to a notice requiring filing by the Indian authorities stated that it made “nil income”. It also claimed a refund of £116,138 tax, deducted by Mamba-based company Ispat Industries, for fees amounting to £396,893, states the judgment.
Interest payments already charged against Clifford Chance were withdrawn by the tribunal as relevant forms had not been signed.