Vodafone tiff likely for next govt, too

With so much tax money at stake & disagreement on conciliation, UPA-2 unlikely to decide before LS polls

With so much tax money at stake & disagreement on conciliation, UPA-2 unlikely to decide before LS polls

The six-year Vodafone tax dispute might stretch longer, as a resolution seems unlikely during the current United Progressive Alliance regime.

The proposal for conciliation has not started, as the government has turned down the telecom multinational’s proposal to do it under international laws.

“Vodafone (must) either accept conciliation under Indian law or pay the taxes. Such negotiations take time. Resolution will take several months,” said a finance ministry official, saying a solution would not be possible under the current government.

 

 

Vodafone had proposed conciliation under the United Nations Commission on International Trade Law but the government wants it under the Indian Arbitration and Conciliation Act. Even if the conciliation process resumes soon, the process is unlikely to get over during the term of this government. An official said with elections round the corner, the government would not like to be dragged into another controversy; there were huge revenue implications at stake. Despite the tax dispute, the UK-based company had recently sought approval to raise stake in its India unit from the existing 64.38 per cent to 100 per cent, for Rs 10,141 crore.

Asked whether some assurance on the tax matter gave comfort to the company to proceed, officials said the decision would have more to do with the huge business opportunity in India, among the top five contributors to Vodafone Plc's global revenue.

Vodafone declined to comment in response to an email query from Business Standard.

 

In 2012-13, the government had amended the law to upturn a Supreme Court judgment and tax Vodafone’s 2007 acquisition of Hong Kong-based Hutchison Whampoa’s stake in Hutchison Essar. After the change was notified, the income tax department sent a notice to Vodafone to pay Rs 14,000 crore, including  interest of Rs 6,000 crore. There is also a provision of imposing a penalty of 100 per cent of the tax demand, about Rs 7,900 crore in this case. A committee set up later under tax expert Parthasarathi Shome had recommended that either the retrospective tax amendment be withdrawn or the penalty/interest be waived.

Some finance ministry officials agree interest and penalty should not be levied if there is a retrospective amendment. So, if the government is going for conciliation, it might look at providing a clarification in the Income Tax Act or through a circular that penalty and interest would not apply in such cases. Since the rupee has depreciated from about 40 against a dollar in 2007 to about 61 against a dollar now, the company will gain on that count, too. Without waiver in the penalty and interest, the company would have to cough up about Rs 22,000 crore.

 

In June, the Cabinet had accepted Vodafone’s offer to enter into a non-binding conciliation. The outcome will be brought back to the cabinet. If both sides agree on the outcome, it will be taken to Parliament. Conciliation would pave the way for amendments to the I-T Act. This would be needed for a uniform law for all companies facing similar tax demands from the government. Finance Minister P Chidambaram had told a press conference on Friday: “We are very clear in mind that what we want to achieve is reconciliation. We want to achieve a settlement that is fair and acceptable to Parliament...We are very clear. I think they are also clear on what they want to achieve; I think they are not clear on the process by which they want to achieve it.”

Recently, the British government’s chief secretary, treasury, Danny Alexander, had met Chidambaram to discuss the issue.

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NO END IN SIGHT

• In 2012-13, the government had amended the law to upturn a Supreme Court judgment and tax Vodafone’s 2007 acquisition of Hong Kong-based Hutchison Whampoa’s stake in Hutchison Essar
• Vodafone had proposed conciliation under the United Nations Commission on International Trade Law but the government wants it under the Indian Arbitration and Conciliation Act
• Even if the conciliation process resumes soon, it is unlikely to get over during the term of this government