Transfer pricing: FinMin pulled out of conciliation talks with Vodafone as company was for global arbitration

Finmin says it decided to propose withdrawal of conciliation offer after Vodafone said it could be resolved only through international arbitration

The finance ministry on Monday said it had decided to propose withdrawal of its conciliation offer to Vodafone after the British telecom company said the transfer-pricing issue could be resolved only through international arbitration.

On February 28, the Cabinet had deferred consideration of a proposal of the ministry to withdraw from conciliation talks with Vodafone, asking it to make efforts towards a speedy decision of the dispute with the company in the Income Tax Appellate Tribunal (ITAT).

"However, through its letter dated March 13, 2014 to the Department of Revenue, Vodafone stated that they see no merit in reviewing the matter of conciliation on receipt of the decision of the ITAT," the finance ministry said in a statement today, explain the "correct factual position and circumstances that led to the government's proposal to withdraw from the conciliation measures initiated earlier".

It further added Vodafone said the only body capable of resolving the issue would be an arbitration panel formed according to Bilateral Investment Promotion and Protection Agreement (BIPA).

Vodafone's reply came in response to a March 11 letter of the Department of Revenue, requesting the company to engage seriously in the proceedings before the ITAT and ensure no avoidable delay is caused. It also said that the department would also ensure that the appeal was heard early, and thereafter, the matter regarding conciliation would be reviewed.

"It was then decided to approach the Cabinet again, bringing these facts to their notice and seeking approval for withdrawal of conciliation," the statement said.

Without waiting for the outcome of the ITAT proceedings, Vodafone served a "Notice of Arbitration" dated April 17, 2014 seeking arbitration under the BIPA between India and Netherlands.

The tax dispute relates to the 2007 acquisition of Hutchison by Vodafone. The I-T department had raised a demand saying it was an indirect transfer of Indian assets.

The company is separately fighting a Rs 3,700-crore transfer-pricing dispute with tax authorities for a transaction in 2008-09. It had appealed this case be clubbed with the main one. This is being heard by ITAT.