After a spate of issues between Vodafone and the government on inclusion of the transfer pricing issue in the conciliation process, sources have indicated that the Cabinet will not withdraw the conciliation process and the company will be given some more time to agree to the terms of conciliation.
Vodafone wants to include the Rs 3700 crore transfer pricing issue, which according to the revenue department goes against the Cabinet approval on conciliation that had been given on June 3. The Vodafone stance has always been to fix all the tax issues in one go.
Also Read: Voda tax: Process that unfurled is complicated, says Shome
The Cabinet move comes as a bit of a shock especially since the finance ministry had already circulated a draft cabinet note withdrawing the conciliation offer to Vodafone to resolve the Rs 20,000 crore tax dispute case.
UK-based Vodafone is in the thick of Rs 20,000 crore capital gains tax dispute with the government that relates to its 2007 acquisition of Hong Kong firm Hutchison Whampoa's stake in India's Hutchison Essar. 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.
On the capital gains case, the Supreme Court had ruled in Vodafone's favour in 2012, saying it was not liable to pay any tax over the acquisition of assets in India from Hong Kong-based Hutchison. Later that year, the government changed the rules to enable it to make retrospective tax claims on such deals, including that of Vodafone.
The Cabinet had in June 2013 approved a Finance Ministry proposal to go in for conciliation with Vodafone to resolve the tax dispute. However, talks broke down after Vodafone issued a supplementary notice to the government, invoking the BIPA and demanded that a separate transfer-pricing case be clubbed with the capital gains tax matter.
Tax dept has already finalised its response to Vodafone's BIPA notice. It plans to rebut Vodafone's notice under BIPA saying that the pact between India and Netherlands does not cover taxation issues.
Reacting to the news, HP Ranina, Senior Advocate of Supreme Court, feels Vodafone should look upon the whole issue favourably. He believes that the government move will be looked at positively by foreign investors. He is of the opinion that the transfer pricing issue will also be sorted out some time soon once the government and the tax department come to some agreement. According to him, the government is giving an impression that it is going out of the way to sort out differences with a foreign investor.
Vodafone had sometime back accused the government of using delaying tactics, but Ranina believes that the government is only trying to resolve the matter.
Ketan Dalal of PWC India too agrees with Ranina. He says, if anything the government is showing keenness to resolve the issue. He feels that the government perhaps has realised that this kind of confrontationist attitude is not doing any good to the already damaged sentiment.
Voda-Finmin Tussle
Vodafone had on January 7, 2014, said that future talks will have value only if transfer pricing was included.
On January 15, 2014, it served a supplementary notice to the government under Bilateral Investment Promotion and Protection Agreement (BIPA) with Netherlands. The supplementary notice was an update of Vodafone's stance on transfer pricing.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
