In a move that is likely to soothe frayed nerves of anxious investors, the Cabinet on Tuesday approved a proposal for conciliation with British telecom giant Vodafone on its six-year-old Rs 11,200-crore tax dispute in India.
“We have just accepted a proposal for a non-binding conciliation. If the outcome is acceptable to the government then it will go to Cabinet and thereafter to Parliament for approval,” finance minister P Chidambaram told reporters after a cabinet meeting.
Chidambaram said it is in India’s interest to resolve the case through the process of conciliation. In 2012, the government had approved changes in tax laws to impose a retrospective provision for tax on some types of international mergers that include Vodafone’s 2007 acquisition of Hutchinson’s mobile assets in India.
This was widely seen as a fallout of Vodafone’s dispute over the R11,200-crore tax demand, with the government arguing that the British firm had concluded the Hutchison deal abroad—Cayman Islands-- to evade taxes.
Vodafone contested it on the basis that no tax was due in any event as the deal was concluded in Cayman Islands.
Foreign and domestic business leaders had criticised the move cautioning it could dent the nation’s image as an investment hotspot sparking fears that this would choke foreign investment into India. Chidambaram confirmed that the government has received a reconciliation proposal from the company.
He said that there was no timeline for the conciliation and the government would communicate it to Vodafone in a day or two.
He made it clear that the proposal is for conciliation under the Arbitration and Conciliation Act and said it was not arbitration.
“Two conciliators will sit together and they would come up with an outcome. It is not an arbitration. They will suggest an outcome, a modified outcome and it is a step by step approach. Everything is in public domain,” he said.