The high-profile meeting between the top executives of British telecom major Vodafone and senior finance ministry officials on Tuesday on taxing its 2007 acquisition of Hutchison’s stake in Hutch-Essar ended with little headway with both sides sticking to their positions.
Sources said while Vodafone executives presented the option of the government reducing the principal tax amount to R2,500 crore from R7,990 crore and waiving the interest and penalty components, the tax department did not agree. The ministry said it could consider waiving the penalty component but the company needs to pay up the tax and interest components.
Sources said the maximum leniency the ministry could be inclined to show was to let go of both penalty and the interest components.
In the absence consensus, more meetings may take place but no new dates have been fixed so far.
Tuesday’s meeting was attended by Vodafone India chairman Analjit Singh, group external affairs director Matthew Kirk and global CFO Andy Halford. Representing the government were revenue secretary Sumit Bose and Central Board of Direct Taxes chairperson Poonam Kishore Saxena.
After the two-and-a-half hour meeting, company executives left the North Block, which houses the finance ministry without taking any questions from waiting mediapersons.
Earlier in the day, telecom minister Kapil Sibal assured Vodafone that the government was “always ready to collaborate and look at some of their concerns”.
The revenue department had recently sent a tax reminder to the company regarding the capital gains tax arising out of the ‘indirect’ transfer of underlying Indian assets of Hong Kong-based Hutchison Whampoa to Vodafone through a Cayman Island-incorporated entity.
The tax reminder was sent under the retrospective amendment that overturned the Supreme Court judgment, which had ruled that tax authorities had no jurisdiction to tax the Vodafone-Hutch deal. Vodafone had insisted that it was not liable to pay any tax. The department then sought a meeting with company officials on the issue.
Possible solutions include Vodafone agreeing to pay the tax component of around Rs 7,990 crore, and the department agreeing to waive the penalty and interest components. However, the company may face questions from its shareholders on why it agreed to pay tax on the deal despite an apex court ruling in its favour.
The other option is the investment-hungry government stating in the forthcoming Budget that it will be withdrawing the retrospective amendment provision – on the lines of the reported suggestion by the Shome panel – and ensuring that Vodafone does not have to pay tax. However, the government’s need to reduce the fiscal deficit to avoid a possible downgrade by rating agencies may not allow it to close any route to raise more revenues.
According to tax experts, finance minister P Chidambaram’s statement on Monday on general anti-avoidance rules did not provide clarity on how he intends to define tax policies in Vodafone-type deals involving transfer of underlying Indian assets.
The government is yet to release the final recommendations of the Shome panel on indirect transfers. The Shome panel has reportedly favoured only prospective application of tax law in such cases. It had also recommended the waiver of interest and penalty if the government chooses to retrospectively apply norms.
Releasing Vodafone’s sustainability report 2012 earlier in the day, Sibal, referring to several issues facing the telecom sector including the forthcoming spectrum auction norms, said: “I can assure Marten Pieters (Vodafone India MD and CEO) and other telecom operators that the government is very, very, very serious about the concerns they have expressed and I can give an assurance today that 2013 will be a different year for the telecom sector.” To this, Pieters said: “I am glad that he gave us some hope. Now that hope needs to translate into action.”