WITH Vodafone Plc threatening to pull the plug on its informal tax conciliation effort with the government, the finance ministry has decided to get out of the talks.
Once the Cabinet approves this, the taxman will formally try to collect the R20,000 crore tax demand from Vodafone, while the latter will once again seek the protection of the Indo-Netherlands bilateral investment protection agreement (BIPA).
The finance ministry’s proposal to the Cabinet asking to end the informal talks, which has the concurrence of the law ministry, follows a Vodafone letter of November 26, 2013, which said the telco would formally be updating its “notice of dispute” under BIPA. This was followed up by a supplementary notice on January, 15, by Vodafone International under BIPA.
The crux of the talks failing is the R3,700-crore tax demand on the Hutch shares owned by Analjit Singh and Asim Ghosh, which were transferred to Vodafone India as part of Vodafone Plc’s overall R11,000-crore deal in 2007. While Vodafone argued that this tax matter was part of the original tax dispute, the finance ministry’s view has been that the two are separate. Vodafone argued with the ministry that even the Supreme Court judgment had made it clear that since no shares had changed hands, no tax was due — para 88 of the Supreme Court judgment says “call and put options were not transferred via share purchase agreement dated 11.02.2007 or any other document whatsoever”.
The finance ministry has argued that the Vodafone India case is in any case before the Income Tax Appellate Tribunal and so cannot be a subject of conciliation anyway. The ministry has also argued that the Vodafone India tax argument seems an afterthought and an attempt by Vodafone Plc to get out of the informal conciliation since in its original April 17, 2012, notice of dispute, Vodafone Plc had not mentioned the Vodafone India tax case.
The dispute over including the Vodafone India tax case has been going on since June last year.
While the government through various letters reiterated that the Vodafone India case could not be included in the conciliation, Vodafone insisted they were linked.
“The I-T department may proceed as per the provisions of the Income Tax Act to collect the outstanding demand from the company,” the law ministry said in its comment on the Cabinet note. The Cabinet is expected to discuss the case soon.
Vodafone did not comment on