End to Vodafone tax row in sight, Finance ministry willing to discuss the issue

[caabhisheksonthalia]

The about 14,000 crore tax row between Indian tax authorities and British telecom major Vodafone could be nearing a resolution with the finance ministry expressing willingness to "discuss" the issue with the company executives.

Finance ministry has written to Vodafone, inviting its representatives for a discussion with country's top revenue officials in response to a request from the company after the tax authorities sent a new tax notice on January 3 demanding tax on its $11-billion acquisition of Hutchison Essar in 2007.

"We have written asking them to come and discuss their issues....we want to hear them out and understand what they want to say," a finance ministry official, privy to the development, told ET

Vodafone has already said it was open to an "amicable" solution.

The revenue secretary Sumit bose and Central Board of Direct Taxes chairman Poonam Kishore Saxena are expected to meet with Vodafone executives next week.

Vodafone had threatened to invoke the India-Netherlands bilateral investment treaty a few months ago but has recently indicated its willingness to settle the six year old tax dispute in its January 5 reply to the new tax notice.

"Vodafone has previously said that it would prefer to reach an amicable solution to this matter," official spokesperson, Vodafone Plc said on Friday.

However, the company continues to maintain that no tax was payable on the above transaction. Top policymakers in the government including Prime Minister Manmohan Singh and finance minister P Chidambaram have maintained that the United Progressive Alliance government is keen on a non-adversarial, predictable and a stable tax regime for investors.

The UK-based telecom company had deal acquired Indian telecom company Hutchison Essar in 2007 from Hong Kong based Hutchison Whampoa through a $11.2 billion overseas transaction executed in Cayman Islands.

The income tax authorities had raised a tax demand demand on the company for not withholding tax on the payment made to Hutchison Whampoa, which Vodafone disputed.

The Supreme Court ruled in favour of the company, but the government amended the Income Tax law retrospectively in the budget this year making the company liable to pay tax.

The government subsequently referred the matter to a committee headed by Parthasarathi Shome, who has now joined the finance ministry as Chidambaram's advisor, after the retrospective amendment invited local and global condemnation. The Shome committee said the tax should be applied prospectively, and if that is not possible at least the interest and penalty amount should be waived off.

The government now is keen on reaching a politically feasible solution that will also send out strong signals internationally that the country's tax authorities' are not aggressive litigants. "Persistent litigation is does not benefit anyone --the taxpayer or the tax department and also sends out negative signals to international investors...." said an income tax official, pointing that the provision for settling cases out of court through Mutual Agreement Procedure or MAP was introduced precisely for this reason.

Vodafone had also requested for MAP in 2010 under Indo- Dutch tax treaty but India turned down the request.