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HindustanTimes Thu,17 Apr 2014

Govt had warned Vodafone on tax liability before deal

HT Correspondent, Hindustan Times  New Delhi, April 25, 2012
First Published: 22:26 IST(25/4/2012) | Last Updated: 01:37 IST(26/4/2012)

The government on Wednesday hit back at Vodafone’s claim that finance ministry had not informed the UK-based telecom major about a potential tax liability should it go ahead with the deal with Hutchison in 2007.

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A highly placed government source told HT that Vodafone was specifically told about its likely tax liability through two letters in March 2007.

The first of these letters was written on March 15 and the tax department followed it up with reminder a week later, more than month before the Vodafone concluded the deal with Hutchison on May 8, 2007.

“It is incorrect to say that the government had not told Vodafone about the potential tax liability before the transaction,” the government source said.

This contradicts the telecom company’s stated position that it was not aware of the possibility of a tax demand.

“At no point before the transaction concluded and the payment was made did any entity of the Vodafone Group receive any communication at any of its business addresses from the Indian Tax Authorities requesting a payment of withholding tax,” Vodafone had said on Tuesday in a statement.

In January, Vodafone won a $2.2 billion (R11,200 crore) tax battle when the Supreme Court ruled that it was not liable to pay any taxes under prevailing laws.

The finance ministry then proposed changes in India’s tax laws to impose a retrospective provision for tax on some international mergers — such as Vodafone’s 2007 acquisition of Hutchinson’s India assets.

The finance ministry said the proposed changes in tax laws would fetch the government an estimated Rs. 40,000 crore.

The provision has sparked fears among global and domestic investors. Earlier this month, seven global industry bodies from the US to Japan, wrote to Prime Minister Manmohan Singh saying the tax threat was “prompting a widespread reconsideration of the costs and benefits of investing in India.”

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