Cabinet may take up Vodafone conciliation issue next week

The Union Cabinet is likely to take up withdrawal of UK-based Vodafone conciliation matter its meeting later this week.

"Hopefully it (withdrawal Vodafone conciliation issue) should come up in the next cabinet meeting," sources said.

The Finance Ministry has already circulated a draft Cabinet note withdrawing the conciliation offer to Vodafone to resolve the Rs 20,000-crore tax dispute case.

The Cabinet had in June 2013 approved a Finance Ministry proposal to go in for conciliation with Vodafone to resolve the capital gains tax dispute related to its acquisition of Hutchison Whampoa's stake in Hutchison Essar in 2007.

While the basic tax demand for the 2007 acquisition is Rs 7,990 crore, the outstanding dues, including a penalty of a similar amount and accrued interest, run into Rs 20,000 crore.

The Ministry opted to withdraw conciliation talks with Vodafone International Holdings BV after the company served a supplementary notice last month to the government under the Bilateral Investment Promotion and Protection Agreement (BIPA) over the tax dispute.

The notice, sources said, demonstrates Vodafone's reluctance to have conciliation within the scope of the terms approved by the Cabinet in June last year.

According to sources, the Finance Ministry will send response to Vodafone's BIPA notice after Cabinet approves withdrawal of conciliation process.

The Finance Ministry has already prepared its rebuttal to the BIPA notice saying that the pact between India and Netherlands does not cover taxation issue, sources said.

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 Secretary.

The other members of the IMG were secretaries from Economic Affairs, the ministries of Law and External Affairs.

While the basic tax demand for the acquisition is Rs 7,990 crore, outstanding dues, including a penalty of a similar amount, accrued interest runs 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.