Amid intense lobbying by global trade bodies in favour of Vodafone in the Rs.11,000-crore tax dispute case, the Finance Ministry, on Thursday, asserted that similar transactions were taxed in the U.S., the U.K. and other European nations.
A Finance Ministry official also questioned the decision of the British telecom major to invoke the India-Netherlands investment treaty, saying the $11.2-billion deal was signed in Cayman Island.
“Such transaction (overseas M&As involving domestic assets) are leviable to tax in the U.S., the U.K., other OECD countries and in China,” Finance Secretary R. S. Gujral told PTI.
The issue pertains to the proposed amendment in Income Tax Act with retrospective effect, which would bring Vodafone-type deals under the tax net and the U.K.-based telecom firm would be liable to pay Rs.11,000 crore tax for its acquisition of Hutchison's stake in Hutchison Essar in May, 2007.
Mr. Gujral further said: “There was a substantive retrospective amendment in the U.K., whereby they taxed Barclays... Now, if such transactions are leviable to tax there, then why should they (companies) not pay tax here?” Mr. Gujral questioned.
Vodafone, in a statement, clarified, it “pays tax in the U.K. as a U.K. tax resident. Vodafone has not been asked to pay taxes in the U.K. because of any retrospective amendments.''
Mr. Gujral further said the Revenue Department had alerted Vodafone and Hutch in March, 2007, that the proposed transaction was prima-facie liable to tax and Vodafone should withhold tax before remitting money.
However, he added, “despite that Vodafone remitted money without withholding tax. Obviously, they have taken a conscious considered view based on whatever legal advice they might have received.''
“The deal happened in the Cayman Islands and they are invoking the India-Netherlands Bilateral Investment Promotion and Protection Agreement (BIPA),” the Finance Ministry official said, adding “while in the Supreme Court, Vodafone said that the deal happened outside India, under the BIPA, it is saying it has made substantial investment in India.”
Earlier this week, the Dutch Subsidiary of U.K.-based Vodafone served a ‘dispute notice' to the government, threatening international arbitration under the bilateral investment treaty.