In a surprise move, the Income Tax (I-T) Department on Tuesday has issued a reminder to British telecom major Vodafone over its pay $2.1 billion or Rs 14,200 crore tax demand and threatened to seize assets in the case of non-payment despite the fact that the case is under international arbitration. The move came at a time when Prime Minister Narendra Modi is promising investors a transparent and business-friendly atmosphere with streamlined taxes. The UK telecom giant, however, stated that the Government’s move shows disconnect with Modi’s promise of a tax-friendly environment.
In fact, the department on February 4 sent a notice to Vodafone International Holdings BV seeking Rs 14,200 crore in taxes, which it says are due from its $11 billion acquisition of Hutchison Whampoa’s India telecom business in 2007. The matter is under international arbitration. “We can confirm that we have received a tax reminder from the Tax Department that also references asset seizures in the event of non-payment,” a Vodafone spokesperson said. The tax demand relates to a dispute that is currently the subject of international arbitration, he said.
However, Vodafone has disputed the tax demand over its acquisition of 67 per cent stake in Hutchison, now called Vodafone India, arguing that no tax was due as the transaction was conducted offshore. But the tax department’s contention is capital gains were made on assets in India. “The Indian Government stated in 2014 that existing tax disputes, including ours, would be resolved through the existing judicial process,” Vodafone said in the statement.
The company also made a reference to the promise made by Modi at ‘Make-in-India’ event in Mumbai on Saturday. “In a week when Prime Minister Modi is promoting a tax-friendly environment for foreign investors - this seems a complete disconnect between the Government and the tax department,” Vodafone said.
Aimed at promoting India as a manufacturing destination, the Government is observing ‘Make In India Week’ in Mumbai. The event was launched by Modi on Saturday. “We have carried out a number of corrections on the taxation front. We have said we will not resort to retrospective taxation. And I repeat this commitment once again. We are also swiftly working towards making our tax regime transparent, stable and predictable,” Modi had said.
The Vodafone case relates to the retrospective amendment of the I-T laws carried out by the UPA Government in 2012 to overturn the Supreme Court verdict, which had favoured Vodafone. The basic tax demand for Vodafone was Rs 7,990 crore, but the total outstanding, including interest and penalty, is estimated to have risen to Rs 20,000 crore.
While both the Central Government and Vodafone have named their arbitrators, they have not yet been able to agree on a third arbitrator to preside over the proceedings. While Yves Fortier of Canada is Vodafone nominee on the arbitration panel, India has named international lawyer Rodrigo Oreamuno to arbitrate on its behalf in the Rs 20,000-crore tax case with Vodafone.
The Supreme Court had ruled in Vodafone’s favour in 2012, saying the company was not liable to pay any tax over the acquisition of assets in India from Hong Kong-based Hutchison. The Government, however, amended the tax laws with retrospective effect following the Supreme Court judgment and claimed taxes. Following an international arbitration notice by Vodafone, the previous UPA Government in May 2014 withdrew its conciliation offer to settle the tax dispute.