The Telegraph
Thursday , May 8 , 2014
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Vodafone ups ante in tax tussle

New Delhi, May 7: Vodafone has served an international arbitration notice to India over a Rs 20,000-crore tax dispute.

The move has prompted the government to withdraw its conciliation offer to settle the row amicably.

Vodafone Group and its Netherlands unit on April 17, “commenced an international investment arbitration against the Indian government under the bilateral investment treaty between India and the Netherlands”, the UK-based company said in a statement.

According to officials, the finance ministry has already obtained the opinion of the law ministry and has drafted a cabinet note to withdraw the non-binding conciliation offer it had made to Vodafone in June last year. It had sought to take similar action in February, but the cabinet continued to favour conciliation.

In its notice, Vodafone said it would go ahead with international arbitration, preferably in London, to resolve the long-pending tax dispute concerning its 2007 acquisition of Hutchison Whampoa’s stake in Hutchison Essar.

It has given two months for a response, which means the new government will have to take a call on the demand for arbitration.

“Since Vodafone and the Indian government have been unable to find an amicable means of resolving the dispute, Vodafone has commenced an international investment arbitration as a way to achieve resolution,” the telecom company said.

In February, the cabinet had put on hold a proposal to withdraw the conciliation offer, pending the settlement of Vodafone’s transfer-pricing case at the Income Tax Appellate Tribunal (ITAT).

In its notice, Vodafone said it wanted to move ahead with the arbitration without waiting for the ITAT decision on the Rs 3,700-crore transfer-pricing case.

The company is locked in twin tax disputes with the Indian government. One pertains to its 2007 acquisition and the other is the transfer-pricing case involving Vodafone India Services.

The cabinet had in June 2013 approved a finance ministry proposal to go in for a conciliation with Vodafone to resolve the capital gains tax dispute related to its 2007 acquisition.

While the basic tax demand is Rs 7,990 crore, the total outstanding is Rs 20,000 crore after including penalty.

Earlier this year, the finance ministry circulated a draft cabinet note seeking to withdraw the conciliation talks after Vodafone demanded that the transfer-pricing row be clubbed with the capital gains tax case.