Vodafone, Cairn can pay tax arrears to settle disputes: FM

Keen to quickly resolve retrospective tax cases, Finance Minister Arun Jaitley today made a one-time offer to UK's Vodafone Group plc and Cairn Energy plc to pay principal amount and get waiver on interest and penalty.
The proposal, however, did not get enthusiastic response with companies saying there is no tax liability on them as they had not done anything wrong.
"In order to give an opportunity to the past cases which are ongoing under the retrospective amendment, I propose a one-time scheme of Dispute Resolution for them," he said while presenting the Budget for 2016-17 in Parliament.
"They can settle the case by paying only the tax arrears, in which case liability of the interest and penalty shall be waived," he said, adding the companies would have to withdraw all pending litigation in courts or tribunals or arbitration proceedings.

While Jaitley did not mention of companies involved, Economic Affairs Secretary Shaktikanta Das subsequently said the comments were directed toward Vodafone and Cairn.
Cairn Energy is facing a tax demand of Rs 10,247 crore on a 2006 business reorganisation it carried out in its India unit before getting it listed.

The company says it has paid all taxes due and there was no unpaid liability. It invoked India-UK BIPA to take the government to arbitration over the issue.
Vodafone, on the other hand, is facing tax liability over its USD 11 billion acquisition of a 67 per cent stake in the mobile-phone business owned by Hutchison Whampoa in 2007.

While the UK telecom group says it does not owe any tax as the transaction was conducted offshore, Income Tax Department is seeking taxes on the deal because it involved assets in the country. Arbitration has been initiated on this issue as well.
"While international arbitration proceedings have commenced to seek resolution of the tax dispute, Cairn notes the efforts of the Government of India to resolve the retrospective tax issue and will study the text of the Budget speech," a Cairn spokesperson said.
Vodafone said, "We will of course study the details of what the Finance Minister has proposed today, while continuing to seek resolution of this matter through international arbitration."

"Vodafone has always maintained that there was no tax to pay at the time it completed its acquisition of Hutchison business in 2007.... Vodafone was the acquirer in this transaction. The company made no capital gains whatsoever," a company spokesperson said.
Jaitley said there are very few cases that remain under
litigation following the retrospective amendment and government has shown keenness to clean that aspect.
"We have taken one more step to rationalise this. Since the assessee says I was taken aback by this amendment, I propose to them to pay the principal tax demand," he said.
However, sources close to the British firms said the very basis of the arbitration initiated was that they dispute existence of any tax liability.

If the tax liability itself has been disputed, where is the question of paying up the principal, they said.
The Minister, further said, the tax department is moving towards a lower tax regime with non-litigious approach and reiterated that the government will provide a stable and predictable taxation regime. "We will not resort to such (retrospective) amendments in future".
"I had also hoped then that the cases pending in various courts and other legal fora relating to certain retrospective amendments undertaken to the Income Tax Act, 1961, through the Finance Act 2012, will soon reach their logical conclusion. I would like to reiterate that we are committed to provide a stable and predictable taxation regime," he said.

The government had in 2014 Budget announced constitution of a high-level committee, which would oversee any fresh case where the Assessing Officer proposes to assess or reassess the income in respect of indirect transfers by applying the retrospective amendment.
"In order to allay any fears of tax adventurism, this committee will now be chaired by the Revenue secretary and consist of Chairman CBDT and an expert from outside. This committee will effectively oversee the implementation of the assurances," Jaitley added.
He said there are about 3 lakh tax cases pending with the first Appellate Authority with disputed amount being Rs 5.5 lakh crore.

"Litigation is a scourge for a tax friendly regime and creates an environment of distrust in addition to increasing the compliance cost of the tax payers and administrative cost for the government," Jaitley said.