 "Vodafone's conciliation talks with govt collapse")
The conciliation talks between Vodafone International Holdings and the Indian government on the contentious tax dispute involving Rs 14,000 crore have broken down. The revenue department in the finance ministry is bringing a note to the Cabinet for withdrawal of the conciliation proceedings.
A proposal allowing conciliation between the two parties was cleared by the Cabinet in June 2013. The revenue department has moved a draft Cabinet note, which according to finance ministry officials has been vetted by the law ministry. A finance ministry official said as the law ministry had given its nod, consultations would begin with other nodal ministries such as those of telecommunications and external affairs. Once the consultation is over, the finance ministry will take the proposal to the Cabinet. But officials say the Cabinet approval is not likely to come before the elections.
“We are still debating when and in what form it should be taken to the Cabinet,” the official said, adding that once the Cabinet nod was secured, the tax authorities would proceed to collect the outstanding amount from Vodafone in accordance with the provisions of the Income Tax Act. Communications and law minister Kapil Sibal, however, said, “The note has not come to me.”
The talks between the two parties, according to sources involved in the process, broke down because the government rejected two proposals made by Vodafone. The UK-based telco had said it was willing to start the conciliation process only if its scope was extended to include the transfer pricing dispute involving Vodafone India Services. The company is locked in a Rs 3,700-crore transfer pricing dispute with the tax authorities for a transaction made in 2008-09. Last month, the tax department had added over Rs 3,200 crore to the income of Vodafone in a fresh transfer pricing case, pegging its additional tax liability around Rs 1,000 crore.
The company also wanted to start conciliation only under the United Nations Commission on International Trade Law (UNCITRAL).
Vodafone Plc did not respond to Business Standard queries on the issue.
In June last year, after the Cabinet approval, finance minister P Chidambaram had said the government had accepted Vodafone’s offer to enter into a non-binding conciliation process.
The outcome was to be submitted to the Cabinet, and then to Parliament if both sides agreed.
The conciliation process, as the Cabinet suggested, would include tax interest (Rs 6,000 crore ) as well as the penalty levied (Rs 7,900 crore) in the case of Vodafone International.
The tax dispute had surfaced in 2007 after Vodafone bought Hong Kong-based Hutchison Whampoa’s stake in the Indian telecom business, Hutchison Essar. The tax department had sent a notice to Vodafone for failing to withhold tax while making payment to Hutchison.
In January last year, the Supreme Court had ruled Vodafone was not liable to pay tax according to the prevalent law.
However the government brought retrospective amendments in the I-T Act in 2012 to tackle Vodafone-like cases, following which the tax department sent a notice to Vodafone, asking it to pay Rs 14,000 crore, including interest of Rs 6,000 crore. There is a provision for imposing a penalty of 100 per cent of the tax demand, which would be Rs 7,900 crore in this case.
VODAFONE’S TAX DISPUTE
The chain of events after the Cabinet cleared the proposal for conciliation
A proposal allowing conciliation between the two parties was cleared by the Cabinet in June 2013. The revenue department has moved a draft Cabinet note, which according to finance ministry officials has been vetted by the law ministry. A finance ministry official said as the law ministry had given its nod, consultations would begin with other nodal ministries such as those of telecommunications and external affairs. Once the consultation is over, the finance ministry will take the proposal to the Cabinet. But officials say the Cabinet approval is not likely to come before the elections.
“We are still debating when and in what form it should be taken to the Cabinet,” the official said, adding that once the Cabinet nod was secured, the tax authorities would proceed to collect the outstanding amount from Vodafone in accordance with the provisions of the Income Tax Act. Communications and law minister Kapil Sibal, however, said, “The note has not come to me.”
The talks between the two parties, according to sources involved in the process, broke down because the government rejected two proposals made by Vodafone. The UK-based telco had said it was willing to start the conciliation process only if its scope was extended to include the transfer pricing dispute involving Vodafone India Services. The company is locked in a Rs 3,700-crore transfer pricing dispute with the tax authorities for a transaction made in 2008-09. Last month, the tax department had added over Rs 3,200 crore to the income of Vodafone in a fresh transfer pricing case, pegging its additional tax liability around Rs 1,000 crore.
The company also wanted to start conciliation only under the United Nations Commission on International Trade Law (UNCITRAL).
Vodafone Plc did not respond to Business Standard queries on the issue.
In June last year, after the Cabinet approval, finance minister P Chidambaram had said the government had accepted Vodafone’s offer to enter into a non-binding conciliation process.
The outcome was to be submitted to the Cabinet, and then to Parliament if both sides agreed.
The conciliation process, as the Cabinet suggested, would include tax interest (Rs 6,000 crore ) as well as the penalty levied (Rs 7,900 crore) in the case of Vodafone International.
The tax dispute had surfaced in 2007 after Vodafone bought Hong Kong-based Hutchison Whampoa’s stake in the Indian telecom business, Hutchison Essar. The tax department had sent a notice to Vodafone for failing to withhold tax while making payment to Hutchison.
In January last year, the Supreme Court had ruled Vodafone was not liable to pay tax according to the prevalent law.
However the government brought retrospective amendments in the I-T Act in 2012 to tackle Vodafone-like cases, following which the tax department sent a notice to Vodafone, asking it to pay Rs 14,000 crore, including interest of Rs 6,000 crore. There is a provision for imposing a penalty of 100 per cent of the tax demand, which would be Rs 7,900 crore in this case.
VODAFONE’S TAX DISPUTE
The chain of events after the Cabinet cleared the proposal for conciliation
- 4 June, 2013: Cabinet approves non-binding conciliation
- 11 June: Department of Revenue writes to Vodafone International Holdings, proposing to initiate conciliation proceedings under the Arbitration and Conciliation Act, 1996 and stated the venue would be New Delhi
- 27 June: Vodafone International writes back, stating it does not give consent for conducting conciliation under the Indian Arbitration and Conciliation Act, 1996 or to a venue within India
- 19 July: Govt reiterates stand. Also states scope of conciliation doesn’t include transfer pricing
- 2 August: Vodafone says conciliation plan doesn’t look feasible, as the two parties have differences of opinion
- 13, 20 and 30 September: Pre-conciliation meetings held
- 21 October and 26 November: Vodafone letters to govt reiterate its earlier stand
- 15 January, 2014: Vodafone serves supplementary notice on govt under bilateral investment protection treaty