Vodafone Vodafone serves notice against India on proposed Finance Bill 2012 !!

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British telecoms operator Vodafone Group said it had served the Indian government with a notice of dispute regarding India's proposal to retrospectively tax overseas transactions.

Vodafone said in a statement on Tuesday that the 2012 finance bill proposals violated international legal protections granted to Vodafone and other foreign investors in India.

"Vodafone has asked the Indian government to abandon or suitably to amend the retrospective aspects of the proposed legislation as Vodafone would prefer to reach an amicable solution to this matter," the company said.

Vodafone has further threatened that it would take whatever steps were necessary to protect shareholder interests, including beginning treaty arbitration proceedings, if the government does not abandon the retrospective amendments.

However, RS Gujral, Finance Secretary, told NDTV Profit the government is yet to receive any notice from Vodafone. “We are yet to receive any paper from Vodafone, cannot comment without seeing the paper,” he said.

Finance Minister Pranab Mukherjee in his Union Budget this year proposed an amendment to the tax law that would change that. The modification, which will apply retrospectively from 1962, could allow the government to tax Vodafone hundreds of crore for its $11.5 bn (Rs 59,225 cr) purchase of Indian telecom operator Hutchison Essar in 2007.

On 20 January 2012, the Supreme Court ruled in favour of Vodafone in a $2.5 bn (Rs 12,900 cr) tax dispute and said that Indian tax officials do not have jurisdiction over a deal between two global companies even if assets involved in that deal are located in India. The government had ordered Vodafone to pay taxes for its acquisition of 67 per cent stake in Hutch in 2007. India wanted Vodafone to pay capital gains taxes, which it believed Vodafone, as the buyer, was obliged to withhold.


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Vodafone must pay withholding tax, govt told Hutchison Essar

The war of words between the government and Vodafone intensified on Wednesday, with the finance ministry saying the UK-based telecom company was asked through Hutchison Essar Ltd (HEL) to provide for withholding tax on their $11-billion deal in 2007.

Finance Secretary R S Gujral had said in an interview with this newspaper on Monday that even before the transaction between Vodafone and Hutchison was completed, the companies were advised that the deal was liable to tax. A day later, Vodafone issued a statement that Gujral’s comments were completely untrue, as only Hutchison was contacted by the tax authorities prior to the closing of the transaction, but the communication did not give an indication that the authorities were re-interpreting the law.

Official letters exchanged between the tax department and HEL reviewed by Business Standard showed that in March 2007 the department wrote to the company, suggesting the Hong Kong-based Hutchison pay tax on capital gains from the sale of its stake in HEL to Vodafone. It was also said Vodafone was liable to deduct tax at source.

“You are requested to impress upon Hutchison Telecommunica-tions International Ltd/Hutchison Telecom Group to discharge their tax liability on the gains made so immediately after the transaction is completed and before they cease to have any operation in India,” read the letter sent to HEL.

In its response in April 2007, HEL said it had “provided copies of this letter to the concerned parties” on the request of the ministry. The company maintained there was no sale of shares in HEL by any entity, so there could be no tax incidence in India and no question of deducting tax at source under Section 195 of the Income Tax Act.

The parties concerned included Vodafone, officials asserted. Vodafone did not respond to an email query.

In May 2007, Vodafone went ahead and made the payment to Hutchison. When it came to the knowledge of the department, a notice was sent to the company in September 2007 under Section 201 of the Act, asking the company why it should not be treated as an assessee in default for failure to withhold tax.

Thereafter, Vodafone and the government fought a long legal battle. The tax department won the case in the Bombay high court. Ultimately when the Supreme Court ruled in favour of the company, the finance ministry proposed retrospective amendments in the Income Tax Act to provide clarity on taxation in such deals. The tax demand on Vodafone is now likely to be restored and may exceed Rs 20,000 crore, including penalty and interest of Rs 7,900 crore and Rs 4,500 crore, respectively.


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