Vodafone rebuts P. Chidambaram's accusation blames Indian govt for collapse of $2 bn tax dispute talks

Feb 20 2014, 08:58 IST
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SummaryVodafone is contesting a tax bill of about Rs 112 bn relating to the acquisition.

British telecom major Vodafone on Wednesday accused the Indian government of delays in the conciliation of its Rs 20,000-crore tax dispute and said New Delhi was seeking to tax the same event twice by raising separate transfer-pricing claims on its 2007 purchase of Hutchison Essar.

In a statement issued on Wednesday evening, the telecom major defended its position on the now collapsed conciliation talks aimed at resolving the capital gains tax dispute over its acquisition of Hutchison Whampoa's stake in Hutchison Essar.

“Vodafone entered into discussions with the Indian government in good faith and with a desire, as one of India’s largest international investors, to achieve a fair outcome acceptable to both parties. Throughout, Vodafone has responded to the government’s queries in a timely manner, notwithstanding, at one point, a six-month delay by the Indian government in responding to correspondence sent by Vodafone,” said the company statement.

Vodafone's assertion comes a day after finance minister P Chidambaram told agencies that the company was not able to make up its mind on the conciliation process.

"In Vodafone's own words, they are unable to make up their mind whether they should go forward with conciliation. The conciliation did not even start," Chidambaram had told PTI on Tuesday. While the basic tax demand for the acquisition is R7,990 crore, dues, penalty and accrued interest take the tax claim to R20,000 crore.

The talks could not progress as the telecom major wanted any negotiated resolution to cover all aspects of the Hutchison Essar sale that were considered by the Supreme Court, which ruled in 2012 that no tax was payable on the 2007 deal.

“The government has, in addition to the main tax case, also sought, in a transfer pricing claim, to tax an alleged transfer of call options held by a company now called Vodafone India Services Pte Ltd (“VISPL”). In fact, no such transfer took place,” Vodafone said, quoting the Court.

In seeking to tax the full value of the Hutchison Essar sale and then to claim tax on an alleged transfer of options in the Hutchison Essar sale, the government is seeking to tax one event twice, it said.

The conciliation talks broke down after Vodafone issued a supplementary notice to the government, invoking a Bilateral Investment Promotion and Protection Agreement (BIPA) and demanded that the separate transfer-pricing case be clubbed with the capital gains tax matter. The finance ministry has already circulated a draft Cabinet note withdrawing the conciliation offer to Vodafone.

Tax department officials said that a renewed tax demand to Vodafone on the 2007 transaction came into existence on the date of the retrospective amendment of the Income Tax Act.

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