Deadline on tax settlement offers likely for companies

India plans a deadline for companies such as Vodafone Group and Cairn Energy to accept its offer to settle disputes on back taxes, said an official with knowledge of the matter, after neither responded four months after the proposal was made.

Prime Minister Narendra Modi's government will proceed with its Rs 50,000 crore ($7.4 billion) tax demand on the two companies after the window lapses, the official said, asking not to be identified citing rules for speaking with the media. A failure to settle would mean continuation of international arbitration.

While Modi wants to make it easier to do business in India, investor confidence had been roiled by lingering retrospective tax demands. To allay concerns, Modi's administration said it wouldn't use the law allowing such taxation any longer and in February announced a one-time offer to settle all such disputes.
 

The proposal waives off interest and penalties if the principal amount is paid. India says Vodafone and Cairn together owe it Rs 20,000 crore in taxes and another Rs 30,000 crore in penalties and interest on the dues.

Finance ministry spokesman D.S. Malik wasn't immediately available for comment on Friday. E-mails to Ben Padovan, a spokesman for Vodafone in London, Cairn India spokesman Arun Arora and Cairn Energy spokeswoman Linda Bain weren't immediately answered.

In March, Cairn Energy said India asked its subsidiary Cairn U.K. Holdings to pay over $4 billion in back taxes and interest for capital gains on a transfer of Indian assets in 2006. The government says Vodafone owes it over $2 billion in taxes and interest on its 2007 purchase of the Indian business of Hutchison Whampoa, now part of CK Hutchison Holdings.

Vodafone has said it doesn't owe taxes as the transaction was conducted offshore, but India said it has a right to tax the deal because it involved assets in the country.