In a week when Prime Minister Narendra Modi is seeking to promote a tax-friendly environment for foreign investors, British telecom major Vodafone on Tuesday received a reminder from the income tax department to pay up Rs 14,200-crore tax demand.
It also received a threat for seizure of its assets in case of non-payment of tax dues, the company said. The tax demand relates to Vodafone’s $11.1 billion acquisition of Hutchison Whampoa’s 67 per cent stake in 2007.
“The Indian government stated in 2014 that existing tax disputes, including ours, would be resolved through the existing judicial process,” Vodafone said in a statement.
The company also alleged that there is disconnect between what the prime minister promised and what tax department executed.
“In a week when Prime Minister Narendra Modi is promoting a tax-friendly environment for investors — this seems a complete disconnect between the government and the tax department,” Vodafone said.
Retrospective taxation
At the inaugural of the ‘Make in India’ week in Mumbai on Saturday, the prime minister had said, “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.”
Tax authorities have argued that since the 2007 deal involved the sale of an Indian asset, capital gains tax is payable. Vodafone challenged the initial demand, losing the case in a lower court but winning in the Supreme Court.
The government, however, amended the tax laws with retrospective effect, following the Supreme Court judgment and sought to claim taxes from the company.
Vodafone subsequently dragged the government to international arbitration and invoked the Netherlands-India bilateral investment protection treaty on government steps to tax the company. The matter is currently before an arbitration panel.