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The Union Cabinet may soon consider a proposal for calling off negotiations with Vodafone Plc for resolving the ₹20,000-crore tax dispute.
“The matter may come before the Cabinet at the earliest,” a senior Finance Ministry official said adding that after the decision, a formal reply will be sent to the telecom major.
This reply is expected to be in response to Vodafone’s supplementary notice on action against the Government of India under the Bilateral Investment Promotion and Protection Agreement (BIPA) with India and Netherlands. Tax Authorities believe that this bilateral agreement does not cover taxation issue.
Vodafone invoked BIPA as the company involved here is based in Netherlands. There are two separate notices issued by the tax department — one related to capital gains tax dispute on acquisition of Hutchison Whampoa’s stake in Hutchison Essar by Vodafone in 2007. The other is the Transfer Pricing Dispute in case of Vodafone India Services (Pvt) Ltd involving ₹3,700 crore.
Vodafone wanted to club the ₹3,700-crore issue with capital gain matter in the conciliation processes to which the Finance Ministry did not agree.
Meanwhile, the company served a supplementary notice which essentially stated that the tax notices will lead to substantial financial losses to the company. “This notice further demonstrates that Vodafone is not willing to have conciliation within the scope of the Cabinet,” said a note prepared by the Finance Ministry.
The Ministry has already circulated a draft Cabinet note withdrawing the conciliation offer to Vodafone. The Cabinet had in June 2013 approved a Finance Ministry proposal to go in for conciliation with Vodafone to resolve the capital gains tax dispute related to its acquisition of Hutchison Whampoa’s stake in Hutchison Essar. While, the basic tax demand for the 2007 acquisition is ₹7,990 crore, the outstanding dues, including a penalty of a similar amount and accrued interest run into ₹20,000 crore.
The Supreme Court had ruled in Vodafone’s favour in 2012, saying it was not liable to pay any tax over the acquisition of assets in India from Hong Kong-based Hutchison. Later in 2012, the Government changed the rules to enable it to make retrospective tax claims on concluded deals.
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