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India Holds Tax Talks With Vodafone

by Mary Swire,, Hong Kong

05 December 2013

There have been two major developments in the battle between telecoms firm Vodafone and the Indian tax authorities.

The longest running of Vodafone's disputes with India relates to its 2007 acquisition of Hutchison Essar. The company has consistently maintained that it is not liable for a USD2.2bn bill in back taxes and penalties relating to the deal, and the Indian Supreme Court sided with Vodafone in 2012. However, retrospective changes to the tax laws were introduced just months after the ruling, throwing it into doubt.

Numerous attempts have been made to launch conciliation talks, with the Government demanding that they take place under Indian law. Vodafone, on the other hand, made clear that it wanted discussions to proceed under the gaze of a neutral, external authority.

Progress does however now appear to have made. Last week, a spokesperson for the company said that it continued "to be in talks with the Indian government to see if we can establish a framework which would allow discussions to begin regarding a possible solution."

On December 3, Vodafone's Chief Executive Vittorio Colao met with the Indian Finance Minister P. Chidambaram. He said afterwards that it was "always good to talk," but did not offer any further information.

Vodafone's transfer pricing practices have also been under the microscope. In February, it was alleged that a share transfer between Vodafone India and Vodafone Teleservices Mauritius in 2007-08 undervalued the shares issued by as much as INR13bn (USD208.8m). Vodafone was accordingly issued with a Transfer Price Order (TPO) by the Income Tax Department.

A petition against the Order was filed with the Bombay High Court, but was rejected in October on the grounds that the transfer pricing authorities did have the right to investigate the supposedly unreported cross-border transaction. The same court has now directed the Income Tax Department's Dispute Resolution Panel (DRP) to deal with the issue.

Vodafone must approach the panel with its petition within the next two weeks. The firm maintains that the transactions in question were "capital transactions," and therefore "not international transactions which fell within the ambit of transfer pricing."

TAGS: court | compliance | Finance | tax | tax compliance | India | Mauritius | tax avoidance | tax incentives | law | ministry of finance | tax authority | tax planning | transfer pricing | tax rates | tax reform | penalties | telecoms | services | Tax | Tax Evasion

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