Use of the Corporate Vehicle for Tax Planning: the Vodafone Case and Direct Taxes Code

Use of the Corporate Vehicle for Tax Planning: the Vodafone Case and Direct Taxes Code

Volume 3 Issue 2 ()

The use of corporate entity in tax planning is permissible as long as it is not used as a colourable device. The Vodafone judgment in 2009 applied lax standards to lift the corporate veil. If the tax claim eventually becomes successful, it can make any tax planning involving a corporate entity difficult. From provisions related to General Anti- Avoidance Rule, residence of a foreign company, Controlled Foreign Corporations and Double Tax Avoidance Agreements under the proposed Direct Taxes Code, it can be inferred that the use of a corporate vehicle for tax planning shall become more difficult when it comes into application, and may have uncertain results. Although the ruling of the Authority for Advanced Rulings in E*Trade in the same year is favourable towards using corporate entity for tax planning, it does not set a precedent and is binding only on the parties involved. Thus, the paper suggests a cautious approach in using a corporate entity for tax planning.

Cite as: Mathews P. George & Pankhuri Agarwal, Use of the Corporate Vehicle for Tax Planning: the Vodafone Case and Direct Taxes Code, 3 NUJS L. Rev. 201 (2010)