But Vodafone says unsure of reaching ‘acceptable resolution’

The Union Cabinet will shortly consider a proposal to start a conciliation process with telecom major Vodafone Group Plc on the pending tax dispute.

But the UK-headquartered Vodafone has said it is not certain of reaching an ‘acceptable resolution’ on tax dispute matter with the Indian Government.

Vodafone and the Finance Ministry are entangled in a tax dispute arising out of Vodafone’s acquisition of Hutchison’s (better known as Hutch) mobile service business in India.

The Tax Department has raised a demand of over Rs 11,217 crore on withholding tax on the deal. Vodafone went to Supreme Court challenging the demand, and won a ruling in its favour. The tax liability rose again after the Income Tax Act, 1961 was amended with retrospective effect, during the tenure of the then Finance Minister Pranab Mukherjee.

While announcing its results on Tuesday, Vodafone has mentioned the tax dispute under the head ‘other significant developments.’

“VIHBV (Vodafone International Holdings BV, registered in the Netherlands) is exploring with the Indian Government whether a mechanism exists under Indian law which would allow the parties to explore the possibility of a negotiated resolution of this dispute, but there is no certainty that such a mechanism exists or that a resolution acceptable to both VIHBV and the Indian Government could be reached,” the disclosure stated.

Proposal for Cabinet

Meanwhile, Government officials confirmed that efforts to finalise the conciliation process are in full swing and a proposal is likely to be put up to the Cabinet shortly. “This proposal will entail amendment of the tax laws,” an official added.

The effort gained momentum after Telecom Minister Kapil Sibal took over the Law Ministry after Ashwani Kumar’s resignation.

The official also mentioned that an inter-ministerial consultation process over the proposal is almost over. This was possible after Sibal sought the view of Attorney General G.E. Vahanvati, who favoured such a step.

He gave his view in light of the Finance Ministry’s clarification that the conciliation proposal would not bypass or alter the tax liability under the Income Tax Act, the official said. It may be noted that Sibal’s predecessor Ashwani Kumar and Vahanvati too earlier, had not favoured any such process.

Commenting on the Government’s move, BMR Advisors’ Leader (Direct Tax), Gokul Chaudhri, said, “The Union Cabinet will need to consider the need for an institutional mechanism or framework for negotiation and conciliation of the dispute. Neither the prevailing tax laws provide such a framework, nor are there a historical framework established under the bilateral investment agreement.”

Hence, the Union Cabinet will need to establish the institution framework, define the mechanics and then allow the next steps to progress for the resolution of the dispute, he added.

However, Sunil Jain, Partner with J Sagar Associates, was doubtful over the success of the conciliation process.

“Normally, a conciliation process between two parties in a dispute will be successful only where the parties recede from their rigid stance, want to see an end to the ongoing controversy and approach the issue in the spirit of mutual accommodation and amicable settlement,” he said.


(This article was published on May 21, 2013)
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