Encouraged by Shome panel recommendations
Telecom giant Vodafone has decided against making a $2.2 billion (about Rs 12,000 crore) provision for its Indian tax bill, in a sign of the company’s confidence that it will not be held liable, following the legislative changes brought in by the Manmohan Singh Government.
Following the Supreme Court decision and the amendment to the tax legislation, the company had to review whether the chances of a successful legal challenge were more probable than not, and back in September had warned that it might have to make just such a provision.
Chance of success
“The advice we have now got is that our chance of success in the challenge is better than evens and that is the hurdle we have to apply when deciding whether or not to make a provision, hence no provision,” Andy Halford, the group’s Chief Financial Officer said on Tuesday as Vodafone reported its results for the first half of its financial year.
He described as “extremely helpful if adopted,” some of the recommendations by the Parthasarathi Shome Expert Committee.
The report recommended that retrospective amendments to tax law should only be made in “exceptional” cases. “It is now back to the Finance Ministry and the Government to decide what to do.”
He said that pending the follow up to the report, the company was holding fire on using international arbitration under the Bilateral Investment Treaty between India and the Netherlands. “It is still sitting on the shelf ready to go if needed.” His comments came as the company reported that earnings before interest taxes, depreciation and amortisation in India rose by 27.2 per cent, with a 3 per cent increase in margins.
However, the group as a whole reported a loss of £1.9 billion for the six months ending in September, as it incurred impairment charges totalling £5.9 billion relating to Spain and Italy.
“It is clear that there is rain in the short term…Southern Europe is not expected to improve,” said Chief Executive Vittorio Colao.
He said that there were some positive signs, including the growth in data usage and continued growth in emerging markets.
He said that an Indian IPO was “clearly” something the company had as a long-term goal, but would need to clarify several issues, including on the spectrum, tax and the general regulatory framework.