Cabinet sends conciliatory signal to Vodafone

Keeps aside for now FinMin suggestion to withdraw conciliation offer in Hutch acquisition; decides to ask appellate tribunal to hasten decision on other dispute

In a clear softening of its earlier stiff stand  on the seven-year tax dispute with London-based Vodafone Plc, the Union Cabinet on Friday decided to keep in abeyance a finance ministry proposal to withdraw the earlier offer of conciliation. Instead, it decided to settle expeditiously the other contentious dispute between the two, on transfer pricing, through the Income Tax Appellate Tribunal (ITAT).

The move gives a reprieve to Vodafone, as the income tax authorities will not be able to serve demand notices to the telco for recovery of tax dues totalling Rs 24,000 crore.

“The Cabinet has decided not to take any hasty decision regarding review of conciliation talks with Vodafone. It has decided to instruct ITAT to expeditiously solve the transfer pricing case. Once that is done, the Cabinet will review the conciliation process,” said a finance ministry official who did not wish to be identified.

The ministry suggested the Cabinet withdraw the conciliation offer after the British major insisted the  transfer pricing case also be included with the 2007 issue pertaining to acquisition of Hutchison Whampoa’s stake in Hutchison Essar. Besides, it wanted conciliation under international laws; the Indian government insisted on domestic law. As the talks got stuck, Vodafone sent a notice to the government under the Bilateral Investment Promotion and Protection Agreement (Bipa).

In the other dispute, Vodafone is fighting a Rs 3,700 crore transfer pricing demand with tax authorities for a transaction in 2008-09. Recently, it moved court for another pricing case of Rs 3,200 crore pertaining to 2009-10. As the first transfer pricing case is coming for hearing at ITAT on March 19, its settlement is not likely before the Lok Sabha elections.

‘BJP will end tax spat’

The Bharatiya Janata Party (BJP) will resolve tax disputes involving companies such as Vodafone Group Plc and Cairn Energy Plc if it wins elections due by May,  party leader Jaswant Singh said. The party may change a retroactive tax law passed two years ago because it deters foreign investment, said Singh. He said the party will seek to hold talks with companies to resolve tax disputes. (Bloomberg)