No Vodafone accord till tax law allows settlement process
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
* At present, the laws do not allow for a settlement in cases such as Vodafone
* The Budget is expected to make announcements that could pave the way for settling similar disputes especially transfer pricing cases
* There has been an 85% increase in transfer pricing allegations in 2011-12
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