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Business News/ Companies / News/  Vodafone to start talks with govt to resolve tax dispute
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Vodafone to start talks with govt to resolve tax dispute

If both sides reach an agreement, the government will take the issue back to the cabinet

The Supreme Court last year had ruled in Vodafone’s favour, saying the British company was not liable to pay any tax over its 2007 acquisition of mobile phone assets in India. Photo: Mint (Mint)Premium
The Supreme Court last year had ruled in Vodafone’s favour, saying the British company was not liable to pay any tax over its 2007 acquisition of mobile phone assets in India. Photo: Mint
(Mint)

New Delhi: Vodafone said on Thursday that it would begin talks with the Indian government to resolve the 20,000 crore tax dispute over the company’s acquisition of Hutchison’s Indian operations in 2007.

“Yes the (pre-conciliation) talks will start," Analjit Singh, chairman, Vodafone India, said after meeting finance minister P. Chidambaram. He didn’t say when.

In June, Chidambaram had offered to enter into a non-binding conciliation with Vodafone to resolve the tax dispute under Indian laws. Vodafone, however, has favoured conciliation under United Nations Commission on International Trade Law.

While Vodafone has selected Matthew Kirk, its group external affairs director, law secretary P.K. Malhotra will represent the government in the pre-conciliation talks.

Both are expected to deliberate on whether the conciliation should proceed under domestic or international laws.

“The talks will be on a range of issues. They will talk about a number of things, mainly to see a way forward," a Vodafone official with knowledge of the matter said, confirming Kirk will represent Vodafone India. the executive requested anonymity.

In 2007, Vodafone International Holdings, a Dutch unit of the British telecom firm, bought the Indian business operations of Hutchison Telecommunications International Ltd through the sale of a Cayman Islands-based firm called CGP Investments Ltd, a unit of Hutchison in a $11 billion deal.

The Indian tax department estimated the company’s liability at around 11,000 crore for not withholding a part of the amount as tax while paying Hutchison.

Vodafone and the tax authorities went to court to resolve the issue. In its judgement, the Supreme Court ruled in favour of Vodafone and held that the deal was not taxable in India. To counter this, the government introduced a retrospective amendment to tax laws to bring such indirect transfer of shares under the tax net. It also introduced a validation clause that effectively made Vodafone liable to pay tax in India, sparking large-scale protests from the investor community over such moves that increased uncertainty. Without conciliation, Vodafone would have had to pay around 8,000 crore of tax, an equivalent penalty and around 4,000 crore as interest.

Vodafone is pushing for complete waiver of interest and penalty and part of the principal amount. The Indian government, however, is unlikely to agree for a waiver of the principal amount.

If both sides reach an agreement, the government will take the issue back to the Indian cabinet.

“This seems more like mediation and conciliation rather than arbitration which could be binding," said Sudhir Kapadia, national tax leader at EY, a consultancy earlier known as Ernst and Young. Any alternative dispute resolution mechanism is welcome given the time taken by the judicial system for resolving cases, Kapadia said.

He said that any future changes in legislation will depend on the outcome of the talks between government and Vodafone. “If the government does want to hold on to the retrospective amendments, it can bring in legislative changes that specifies that all assessees impacted by these amendments will not have to pay interest and penalty," Kapadia said.

PTI contributed to this story.

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Published: 19 Sep 2013, 07:55 PM IST
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