Govt for fast-track solution to Vodafone transfer pricing row

Union Cabinet on Friday said the government will take a decision on withdrawal of conciliation offer to Vodafone for resolving the Rs. 20,000 crore tax dispute after a transfer pricing case concerning the U.K. telecom giant is settled. File photo

The government, on Friday, decided not to withdraw Vodafone conciliation talks for settling the Rs.20,000-crore tax dispute until a separate case over transfer pricing is settled by a tribunal.

The Union Cabinet, at its meeting on Friday, agreed not to take any ‘hasty decision’, and decided to fast-track the transfer pricing dispute case of Vodafone India Services pending with the Income Tax Appellate Tribunal (ITAT). Once the ITAT expeditiously solves the transfer pricing case, “the Cabinet will review the conciliation process,” a senior Finance Ministry official said.

Vodafone is locked in twin tax disputes with the government. One pertains to its 2007 acquisition of Hutchison Whampoa’s stake in Hutchison Essar, and the other is the transfer pricing case involving Vodafone India Services. “The Cabinet has decided not to take any hasty decision on review of conciliation talks with Vodafone,” he added.

The decision regarding the Vodafone conciliation offer may have to be taken by the next government as the ITAT, which will hear the transfer pricing case from March 19, will take a few months to decide on the dispute.

The Cabinet had in June, 2013, approved a Finance Ministry proposal to go in for conciliation with Vodafone to resolve the capital gains tax dispute related to its acquisition of Hutchison Whampoa’s stake in Hutchison Essar. While the basic tax demand is Rs.7,990 crore, the total outstanding is Rs.20,000 crore after including penalty.

Earlier this month, the Finance Ministry circulated a draft Cabinet note seeking to withdraw the conciliation talks after Vodafone demanded that the Rs.3,700 crore transfer pricing row be clubbed with the capital gains tax case. It followed a notice under the Bilateral Investment Promotion and Protection Agreement by Vodafone International Holdings BV to the government over the tax dispute. 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. The government changed the rules later in 2012 to enable it to claim tax retrospectively on concluded deals.