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Vodafone ignores tax settlement offer, to continue arbitration

business Updated: May 28, 2016 16:46 IST
Suchetana Ray
Suchetana Ray
Hindustan Times

A man casts a silhouette onto an electronic screen displaying a Vodafone logo, in Mumbai.(Reuters)

Vodafone will not accept the government’s offer for a one-time settlement of its pending tax case and press with the ongoing arbitration.

Arun Jaitley in his budget for 2016-17 has proposed a dispute resolution scheme for settling pending cases of retrospective taxes. Under the proposal, interest and penalty would be waived off for settling the tax by paying only the principal amount.

The Indian tax department had slapped a demand of Rs 7,990 crore on Vodafone for failing to pay capital gains tax on its 2007 deal to buy the Indian assets of Hutchison Telecommunications International.

This deal was worth $11 billion (almost Rs 50,000 crore at that time) and the entire tax liability with the principal, interest and penalty is over Rs 20,000 crore. But under the government’s resolution mechanism, Vodafone would have to pay only the principal of Rs 7,990 crore to settle this dispute.

Top sources in the finance ministry say that despite the on-time offer, Vodafone is unlikely to take the settlement route as the company’s shareholders have voted against the move.

“The shareholders believe that they will win the arbitration filed in the international court since the Supreme Court of India ruled in Vodafone’s favour,” said a finance ministry official who did not wish to be named.

Sources say that the company’s shareholders feel that it is against the spirit of justice when a country overrules a verdict from its own apex court.

Vodafone Plc refused to comment on mails sent by HT.

He added that India’s argument will be that tax matters cannot be arbitrated under BIPA (Bilateral Investment Protection Act). Since the money for the 2007 deal came from Vodafone’s Dutch arm, the telecom giant has moved the Hague-based International Court of Justice claiming violation of the Indo-Dutch BIPA.

“We have tried the reconciliation route, we have also given them the option of a one-time settlement but Vodafone is not interested,” said an official in finance ministry. The official, who did not wish to reveal his identity, said that the British telco wants to go down the long path of arbitration because of their shareholders and legal advisors.

“The tax department sent a reminder tax notice of Rs 14,200 crore to Vodafone in February, after we realised that the telecom company has no interest in settling the dues out of court” said the source quoted above.

In 2012, the Supreme Court had ruled in Vodafone’s favour saying that it did not owe capital gains tax to India. However, the government enacted a tax law with retrospective effect to sidestep the apex court’s ruling and imposed the tax on Vodafone. This had caused international furore at that time.

Arun Jaitley had proposed the one-time settlement offer keeping in mind the negative sentiment created by retrospective tax demands on companies like Vodafone and Cairn Energy Plc.