What is retrospective taxation?

Retrospective tax is nothing but a combination of two words “retrospective” and “tax” where “retrospective” means taking effect from a date in the past and “tax” refers to a new or additional levy of tax on a specified transaction.

Hence, retrospective tax allows a country to pass a rule on taxing certain products, items, or services. This taxation is applied to the companies from a previous date i.e. before the date on which the law is passed.

Countries correct anomalies in their taxation policies, that have, in the past, allowed companies to take advantage of such loopholes.

Many other countries like the USA, the UK, the Netherlands, Canada, Belgium, Australia, and Italy have retrospectively taxed companies.

Retrospective Taxation hurts companies that had knowingly or unknowingly interpreted the tax rules differently.

For example, In 2012, the Indian government then retrospectively amended the tax code, giving itself the power to go after mergers and acquisitions(M&A) deals all the way back to 1962 if the underlying asset was in India.

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