No Vodafone accord till tax law allows settlement process

Feb 06 2013, 08:52 IST
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Final talks have to cover other Vodafone disputes with tax authorities. (Reuters) Final talks have to cover other Vodafone disputes with tax authorities. (Reuters)
SummaryFinal talks have to cover other Vodafone disputes with tax authorities

Vodafone officials have met revenue secretary Sumit Bose several times over the past few weeks to settle the Rs 11,200-crore tax dispute on the company’s $11-billion purchase of Hutchison’s shares in 2007, but no settlement can be reached until the government changes the law to allow for this, sources close to the negotiations told FE. The Budget is expected to make announcements in this context, paving the way for settling several other similar tax disputes, especially in the case of transfer pricing allegations.

Interestingly, the number of tax disputes has shot up dramatically. According to finance ministry data, there was an 85 per cent increase in transfer pricing allegations in 2011-12. While a total of Rs 1,220 crore was the amount of such demands in 2005-06 (for cases pertaining to 2002-03), this rose to Rs 24,111 crore in 2010-11 (for cases pertaining to 2007-08) and then to Rs 44,532 crore in 2011-12 (for cases pertaining to 2008-09). In 2011-12, every other transaction of MNC subsidiaries led to a tax claim, up from one in four just 5 years ago.

Since Vodafone is not an existing assessee that has under-reported taxes, it cannot ask for a settlement under existing processes. But there is no other official mechanism now that allows the taxman and Vodafone to reach a settlement on the amount of tax that needs to be paid, or on whether interest and penalties are to be waived and, if so, by how much.

Besides the Vodafone-Hutch tax dispute, other big cases that cannot go forward in the absence of a formal dispute resolution process include Nokia where, sources say, a Rs 13,000-crore tax demand is in the process of being served for alleged transfer pricing violations; a Rs 3,500-crore dispute with Vodafone over the demerger of its passive infrastructure assets to Indus Towers; and a Rs 8,500-crore transfer pricing adjustment of Rs 8,500 crore also involving Vodafone where the tax demand could be about Rs 2,600 crore.

The high-profile transfer pricing adjustment over the purchase of Shell India’s shares by parent Shell that hit the headlines on Monday with Shell India chairperson saying Shell plans to challenge the order “strongly” also falls in the same category. Shell officials will be meeting the DG International Taxation to discuss the matter on Friday. FE

DUE PROCESS

* At present, the laws do not allow for a settlement in cases such as Vodafone

* The

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