Vodafone case: Taxman kept on hold, line left open on conciliation

Mar 01 2014, 17:32 IST
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In a surprise development, the government on Friday decided not to call off in haste the conciliation. Reuters In a surprise development, the government on Friday decided not to call off in haste the conciliation. Reuters
SummaryGovt decided not to call off in haste conciliation process with Vodafone over Rs 20,000-crore tax dispute.

the development of an additional liquid bulk terminal at Jawaharlal Nehru Port at a cost of Rs 2,496 crore.

In the Vodafone case, the company had insisted that the transfer pricing case be part of the conciliation process to resolve the overall tax dispute over its 2007 purchase of Huthison's 67% stake in Hutch-Essar. However, the government had contended that the matter is sub judice and hence it could not take a decision regarding clubbing the two.

"The Cabinet has decided not to take any hasty decision regarding a review of the conciliation process. The government has decided to instruct the ITAT (Income Tax Appelllate Tribunal) and Vodafone to expeditiously solve the transfer pricing case. Once that is done, the Cabinet will review the conciliation process," a senior government official said.

The Mumbai ITAT had on Monday adjourned the transfer pricing case to March 19 after Vodafone sought more time in the light of fresh documents filed by the tax department.

Analysts said that the government's decision of not taking a decision on the matter hurriedly is a mature sign since it is better to first wait for the ITAT judgment. “A final decision on the Vodafone issue would impact foreign investments and, therefore, the government needs to move cautiously,” said one.

Had the Cabinet decided to call off the conciliation process, the situation could have got messy with Vodafone moving for international arbitration and the tax department proceeding to recover the claimed dues. The company would have challenged the tax notice in a court of law.

Vodafone has already served a supplementary notice to the government on January 15 under the bilateral investment protection agreement under the India-Netherlands bilateral investment treaty.

According to Vodafone, the government has, in addition to the main tax case, also sought, in a transfer pricing claim to tax an alleged transfer of call options held by a company now called Vodafone India Services Pte Ltd (VISPL) when in fact no such transfer took place — the options were held both before and after the Hutchison Essar sale by the same company. “The Supreme Court examined the Hutchison structure in great detail and concluded that there was no transfer or assignment of call options in the Hutchison Essar sale,” the company has said. “So in seeking to tax the full value of the Hutchison Essar sale and then to claim tax on an alleged transfer of options in the

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