India’s finance secretary R.S. Gujral said that British telco Vodafone will likely have to pay a tax bill of approximately Rs200bn (US$3.74bn) if the parliament approves recently-proposed tax law changes.
This bill is linked to the purchase of a…
India’s finance secretary R.S. Gujral said that British telco Vodafone will likely have to pay a tax bill of approximately Rs200bn (US$3.74bn) if the parliament approves recently-proposed tax law changes.
This bill is linked to the purchase of a 67% stake in Hutchison Essar (now known as Vodafone India) in 2007.
Early this year, India’s Supreme Court had concluded that Vodafone was not liable for US$2.4bn in withholding taxes for the Vodafone India stake acquisition.
But a couple of months later, India’s finance ministry proposed to tax all acquisitions of local assets by foreign companies since 1962 as part of the country’s 2012-2013 budget.
The new amount demanded by the Indian government is US$1.3bn more than originally sought. Gujral, in an interview with India’s NDTV channel, said the revised bill includes interest and penalties.
The proposed tax amendments may be signed into law in late May.
Reacting to these potential changes, Vodafone said it is “naturally disappointed that, despite very widespread concern in India and internationally, the government has not seen fit to propose amendments to address the uncertainty caused by retrospective tax legislation. We are studying the legislation as amended, and will take all possible steps to safeguard our shareholders’ interests.”
The company added that “it would be grossly unjust if, on the basis of legislation passed five years after the event, Vodafone were to be charged tax on a gain made by someone else, especially where the Indian Supreme Court unambiguously ruled that no tax was payable in India according to the laws of India in force in 2007. Given this clarity, there was no legal basis for Vodafone to withhold tax.”
Vodafone previously said that it has served the Indian government with a notice of dispute. The move constitutes the first step required prior to commencing international arbitration under the Bilateral Investment Treaty (BIT).
