 "Vodafone store")
That the tax department is set to challenge the Bombay High Court judgement on Vodafone’s Rs 3,200-crore transfer pricing case is the latest setback for the British telecom major’s long-running dispute with the taxman. This dispute is different from the Rs 20,000-crore retrospective tax dispute the company has with the Indian government. Last month, Vodafone moved the International Court of Justice (ICJ) in The Hague, Netherlands, seeking the appointment of a third arbitrator for the bigger dispute.
To dispel the impression of a regressive tax regime and push ease of doing business, Finance Minister Arun Jaitley has said on a number of occasions that the government will not actively pursue pending retrospective taxation cases.
A similar commitment has not been given for transfer pricing cases, though government officials have said decisions by courts will not be challenged. That is why the department’s decision to challenge the HC judgment is surprising.
This transfer pricing tax case comprises two separate transactions — sale of Vodafone's call centre business to Hutchison Whampoa Properties and assignment of call options to Vodafone International Holdings BV, in 2007-08.
The tax department had made a Rs 8,500-crore transfer pricing adjustment in the case, upheld by the Income Tax Apellate Tribunal. Vodafone had contended there was no assignment of call options and, hence, no international transaction.
The HC had negatived the transfer pricing adjustment, stating the tribunal’s attempt to overcome Vodafone’s 2012 Supreme Court ruling was unsustainable. On call options, the court had held that surrender of option rights was not a transfer under the Income Tax Act.
The tax department, however, states: “A substantial question of law has arisen on the issue of taxability of capital gains arising on the surrender of call option rights. The ruling will have adverse effect in many other domestic cases. As such, it has been decided to challenge the ruling.”
"The HC judgment was reasoned and based on correct interpretation of the principles of transfer pricing and realm of income chargeable to tax. However, the controversial aspect of the judgment revolved around classification of call options as an asset or otherwise, having regard to the amended definition of ‘transfer’ under the Act. Given the magnitude of the issue and the stakes involved, the filing of appeal before the Supreme Court was expected,” said Rakesh Nangia, managing partner with Nangia & Co.
In Union Budget 2016-17, the finance minister had offered to settle past cases arising out of a retrospective amendment of I-T laws, without naming a company. The retrospective law, deferred for three years, takes effect from April 2017.
“I propose a one-time scheme of dispute resolution for them (companies embroiled in retrospective cases), in which, subject to their agreeing to withdraw any pending case in any court or tribunal or any proceeding for arbitration, mediation, etc, under a Bilateral Investment Protection Agreement, they can settle the case by paying only the tax arrears, in which case liability of the interest and penalty shall be waived,\" Jaitley had said.
It was clear that Vodafone rejected this offer when they moved to the ICJ.
To dispel the impression of a regressive tax regime and push ease of doing business, Finance Minister Arun Jaitley has said on a number of occasions that the government will not actively pursue pending retrospective taxation cases.
A similar commitment has not been given for transfer pricing cases, though government officials have said decisions by courts will not be challenged. That is why the department’s decision to challenge the HC judgment is surprising.
This transfer pricing tax case comprises two separate transactions — sale of Vodafone's call centre business to Hutchison Whampoa Properties and assignment of call options to Vodafone International Holdings BV, in 2007-08.
The tax department had made a Rs 8,500-crore transfer pricing adjustment in the case, upheld by the Income Tax Apellate Tribunal. Vodafone had contended there was no assignment of call options and, hence, no international transaction.
The HC had negatived the transfer pricing adjustment, stating the tribunal’s attempt to overcome Vodafone’s 2012 Supreme Court ruling was unsustainable. On call options, the court had held that surrender of option rights was not a transfer under the Income Tax Act.
The tax department, however, states: “A substantial question of law has arisen on the issue of taxability of capital gains arising on the surrender of call option rights. The ruling will have adverse effect in many other domestic cases. As such, it has been decided to challenge the ruling.”
"The HC judgment was reasoned and based on correct interpretation of the principles of transfer pricing and realm of income chargeable to tax. However, the controversial aspect of the judgment revolved around classification of call options as an asset or otherwise, having regard to the amended definition of ‘transfer’ under the Act. Given the magnitude of the issue and the stakes involved, the filing of appeal before the Supreme Court was expected,” said Rakesh Nangia, managing partner with Nangia & Co.
In Union Budget 2016-17, the finance minister had offered to settle past cases arising out of a retrospective amendment of I-T laws, without naming a company. The retrospective law, deferred for three years, takes effect from April 2017.
“I propose a one-time scheme of dispute resolution for them (companies embroiled in retrospective cases), in which, subject to their agreeing to withdraw any pending case in any court or tribunal or any proceeding for arbitration, mediation, etc, under a Bilateral Investment Protection Agreement, they can settle the case by paying only the tax arrears, in which case liability of the interest and penalty shall be waived,\" Jaitley had said.
It was clear that Vodafone rejected this offer when they moved to the ICJ.
