As part of its promise to end uncertainty on retrospective tax issues and provide a transparent tax regime for oversee investors, the Government has decided not to contest the Bombay High Court decision favouring Vodafone in the Rs3,200 crore tax case. The Government will take similar approach in other transfer pricing litigations involving MNCs.
“The Government wants to convey a clear and positive message to investors globally that its decisions would be ‘fair, transparent and within the four corners of law’,” Telecom Minister Ravi Shankar Prasad said briefing reporters after a meeting of the Union Cabinet. He said the Cabinet has decided to accept the Bombay High Court order of October 10, 2014, in the case of Vodafone India Services Pvt ltd. Prasad added that the Government has also decided “to accept orders of Courts/ITAT/DRP in cases of other taxpayers where similar transfer pricing (TP) adjustments have been made and the Courts/ ITAT/ DRP have decided/decide in favour of the taxpayer”.
The retrospective taxation brought in by the previous UPA Government in connection with a separate Vodafone case had raised serious concerns over predictability and consistency of the tax policies and had put off overseas investors from Indian markets. The Minister said the decision was a “major correction of a tax matter which has adversely affected investor sentiment. This will set at rest the uncertainty prevailing in the minds of foreign investors in respect of transfer pricing cases, he said.
“It will bring greater clarity and predictability for taxpayers as well as tax authorities, thereby facilitating tax compliance and reducing litigation on similar issues... improve the investment climate in the country,” it added. The decision would have implications for MNCs especially Dutch oil major Shell which had got a favourable ruling in the transfer pricing case from the Bombay High Court. A Vodafone spokesperson said, “We welcome Indian Government’s decision not to appeal the Bombay High Court ruling. Stability and predictability in tax matters are important for long-term investors such as Vodafone.”