Vodafone Slams Indian Govt On $2 Billion Tax Notice

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NEW DELHI – Tax authorities have raised a $2.1-billion (over Rs 14,000-crore) claim on Vodafone and threatened to seize its assets, prompting the telecom giant to slam the income tax (I-T) department’s latest action in the dispute involving its acquisition of Hutch’s telecom business in India.

“In a week when Prime Minister (Narendra) Modi is promoting a tax-friendly environment for foreign investors – this seems a complete disconnect between government and the tax department,” Vodafone said in a statement. It added that the government had also stated in 2014 that existing tax disputes would be resolved through current judicial process.

“There seems to be a gap between the government’s intention to settle the Vodafone case and action of the tax department. The government’s greater intent is to amicably settle the matter,” said Mukesh Butani, managing partner at BMR Legal, adding that he had not seen the notice sent to Vodafone.

A spokesperson for the tax department refused to comment on the case although the government sought to suggest it was a routine action. “The department is strictly adhering to the regulations and serving of notice (to Vodafone) was just normal (procedure). The assessing officials issue assessment orders and demand notices as part of the normal process,” Central Board of Direct Taxes member Surabhi Sinha told reporters on the sidelines of Make in India week.

Vodafone was slapped a notice for its failure to deduct taxes while completing the $11.5-billion acquisition of Hutch’s 67% stake in the Indian telecom business in 2007, a case in which the Supreme Court ruled in the company’s favour.

Pranab Mukherjee as finance minister then amended the law retrospectively to levy tax on Vodafone and other M&A deals where the business interest was in India but the transaction was done overseas. In this case, Vodafone was based in the UK and Hutch in Hong Kong.The move came in for all-round criticism and BJP had also described it and other cases as instances of “tax terrorism”, which it has sought to end after coming to power.

Although it has promised that “retrospective taxation” was a thing of the past, it has not amended the law to end earlier disputes. In fact, stable taxation policy is one of the key themes of the government’s Make in India programme, meant to attract investment. But steps such as notices to FIIs in the fourth quarter of the last financial year again spooked investors.

Global investors have privately said that they were not worried about the possibility of facing action for past actions but an amendment would provide greater comfort.