Response to Vodafone's BIPA notice finalised: I-T

Written by PTI | New Delhi | Updated: Feb 23 2014, 20:53pm hrs
VodafoneResponse to Vodafone's BIPA notice finalised: I-T
The Income Tax department plans to rebut Vodafone's notice under BIPA saying that the pact between India and Netherlands does not cover taxation issues.

The response to the Bilateral Investment Promotion and Protection Agreement (BIPA) notice was finalised after a meeting of the inter-ministerial group, headed by the Finance


The other members of the IMG were secretaries from

Economic Affairs, the ministries of Law and External Affairs. "Tax department has finalised its response to the notice

saying BIPA does not cover tax issues. The reply has been sent the Finance Minister," an official source told PTI.

Once the ministry gives its go-ahead to the response, the

final reply will be sent to Vodafone.

UK-based Vodafone is in the thick of Rs 20,000 crore

capital gains tax dispute with the government that relates to

its 2007 acquisition of Hong Kong firm Hutchison Whampoa's

stake in India's Hutchison Essar.

While the basic tax demand for the acquisition is Rs7,990 crore, outstanding dues, including a penalty of a similar amount and accrued interest, run into Rs 20,000 crore.

Vodafone had on January 10 served a supplementary notice

to India invoking the India-Netherlands BIPA in which it said

that dispute in respect of transfer pricing case between

Vodafone India Services (VISPL) and VIHBV.

It said the amendment to the I-T Act will cause Vodafone

International Holdings BV (VIHBV) substantial financial loss.

Since Vodafone has been insisting that tax issues are

covered under BIPA, the source said the telecom firm is likely

to approach Arbitration Tribunal under United Nations.

The Cabinet had in June 2013 approved a Finance Ministry

proposal to go in for conciliation with Vodafone to resolve

the tax dispute.

However, the talks broke down after Vodafone issued a

supplementary notice to the government, invoking the BIPA and demanded that a separate transfer-pricing case be clubbed with the capital gains tax matter.

The company wanted to club a Rs 3,700 crore transfer-

pricing case of Vodafone India Services with the capital gains

tax issue. The transfer pricing matter is pending in Bombay

High Court.

On the capital gains case, the Supreme Court had ruled in

Vodafone's favour in 2012, saying it was not liable to pay any

tax over the acquisition of assets in India from Hong

Kong-based Hutchison.

Later that year, the government changed the rules to

enable it to make retrospective tax claims on such deals,

including that of Vodafone.