Govt says willing to restart conciliation talks with Vodafone

Attempts to tax one event twice: Voda

The government appears to be willing to restart conciliation talks with UK-based Vodafone if the telecom firm makes up its mind to settle the Rs 20,000-crore tax dispute.

A day after Finance Minister P Chidambaram said it is up to the revenue department to enforce the tax notice on the company, highly placed sources said if Vodafone makes up its mind on conciliation, it can happen in a few days.

"If Vodafone decides to begin the conciliation, if two conciliators can be appointed, then the conciliation process should not take more than a few days," sources said.

The conciliation talks broke down after Vodafone issued supplementary notice to the government, invoking the Bilateral Investment Promotion and Protection Agreement (BIPA) and demanded that the separate transfer-pricing case be clubbed with the capital gains tax matter. The Finance Ministry has already circulated a draft Cabinet note withdrawing the conciliation offer.
 “In Vodafone's own words, they are unable to make up their mind whether they should go forward with conciliation. The conciliation did not even start,” Chidambaram had said on Tuesday.

The Cabinet had in June 2013 approved a Finance Ministry proposal to go in for conciliation with Vodafone to resolve the capital gains tax dispute related to its acquisition of Hutchison Whampoa's stake in Hutchison Essar in 2007.

While the basic tax demand for the acquisition is Rs 7,990 crore, outstanding dues, including a penalty of a similar amount and accrued interest, run into Rs 20,000 crore.Vodafone which has had prolonged dialogue with the government on the tax demand, on Wednesday signalled a hardening stance on the whole issue.

Citing that in 2012, the Supreme Court delivered an unambiguous and unanimous verdict that there was no tax payable on the Hutchison Essar transaction between Vodafone International Holdings BV (VIHBV) and Hutchison Whampoa.

“The Indian government responded to the Supreme Court verdict by introducing retrospective taxation measures which fundamentally changed the existing law and sought to raise a tax demand against VIHBV, five years after the Hutchison Essar sale,” Vodafone said in a statement.

The company said that Parthasarathi Shome, the Head of the government’s Tax Administration Reforms Commission, has recommended avoiding retrospective changes to tax except in the “rarest of rare” situations; and that even when such measures were to be applied, capital gains tax should only be sought from the seller, never the acquirer.

Vodafone said it had suggested international conciliation mechanisms. “All of these suggested ways forward were rejected by the Indian government,” it said, adding that the government has also sought, in a transfer pricing claim, to tax an alleged transfer of call options held by a company now called Vodafone India Services. 

The company said that the government by wanting to tax the full value of the Hutchison Essar sale and then claiming tax on an alleged transfer of options in the Hutchison Essar sale, is seeking to tax one event twice.