Government to Drop Peace Offer as Vodafone Serves Arbitration Notice - The New Indian Express

Government to Drop Peace Offer as Vodafone Serves Arbitration Notice

Published: 08th May 2014 06:00 AM

Last Updated: 08th May 2014 01:24 AM

Private sector cellular operator Vodafone which is fighting tax tangle has served an arbitration notice to India over the Rs 20,000 crore tax dispute, this could prompt the government to withdraw the conciliation offer that it had earlier extended to the British telecom firm for amicably settling the tax dispute.

The cellular operator has given two months for the government to respond meaning that the new government that comes into power after May 16 will have to take a call on the demand for arbitration.

According to sources, the Finance Ministry has already moved a Cabinet note for withdrawal of the non-binding conciliation offer it had made to Vodafone in June last year.

In its notice on April 17, Vodafone said it will go ahead with international arbitration, preferably in London, to resolve the long-pending tax dispute concerning its 2007 acquisition of Hutchison Whampoa’s stake in Hutchison Essar.

The Cabinet had on February 28 decided to put on hold the proposal to withdraw the conciliation offer, pending settlement of Vodafone’s transfer-pricing case at the Income Tax Appellate Tribunal (ITAT).

Vodafone, in its notice, said it wanted to move ahead with the arbitration without waiting for the ITAT decision on the Rs 3,700 crore transfer-pricing case.

Vodafone is locked in twin tax disputes with the government. One pertains to its 2007 acquisition and the other is the transfer-pricing case involving Vodafone India Services.

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 2007 acquisition.

While the basic tax demand is Rs 7,990 crore, the total outstanding is Rs 20,000 crore after including penalty.

The Bilateral Investment Treaty (BIT) arbitration which was filed in April 2014, arises from government’s 2012 enactment of retrospective taxation of VIBH’s acquisition of indirect interests in Hutchison Essar Ltd in 2007, which the Supreme Court held was not taxable under the law at the time.

Since Vodafone and Indian government have been unable to find an amicable means of resolving the dispute, Vodafone has commenced an international investment arbitration as a way to achieve the resolution, a Vodafone statement said Wednesday.

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