Indian Tax And License Fee Claims Against Foreign Telcos Dropped

by Mary Swire, Tax-News.com, Hong Kong

08 June 2009

The major global telecom firms will be able to bid for third generation mobile (3G) spectrum in India, now that the Department of Telecom (DoT) has dropped a six year old case against AT&T, BT, Equant and MCI Worldcom for alleged evasion of licence fees and service tax.

In 2003 it was alleged that these foreign telecom companies sold managed data network services to corporates in India without taking any licence from DoT. They had allegedly teamed up with Indian operators, including Videsh Sanchar Nigam Ltd (now Tata Communications), Reliance Communications and Bharti, to bypass local taxes and levies. The companies were accused by the Parliamentary Standing Committee on IT of violating foreign direct investment norms and evading tax.

A DoT committee finally determined that the alliance with Indian players was in order. In the case of AT&T, the DoT panel confirmed that there was no loss of revenue as the service tax had been properly accounted for and the licence fee was paid by VSNL and, in accordance with the terms and conditions of the international long-distance licence, the licensee is allowed to use agents for provision of service.

The DoT panel noted that BT had an arrangement with Bharti to service customers in India. BT, however, had also serviced clients directly through its subsidiary in Singapore. The UK telecoms company claimed that the revenues earned in Singapore related to services provided by BT outside India and, therefore, it was not liable to service tax or licence fee. As a result all the criminal cases against Indian and international long-distance operators including AT&T, British Telecom, France Telecom, Verizon, Bharti Airtel, Reliance Communications have been dropped.

Recommended