The Indian government’s tax department has told Vodafone it may seize the company’s local assets if it does not pay a tax bill of some Rs142bn (US$2.1bn), which is currently the subject of international arbitration. A spokesperson for the UK-based telco described the move as “a complete disconnect” with government efforts to promote a tax-friendly environment for foreign investors.
The Indian government’s tax department has told Vodafone (LSE:VOD) it may seize the company’s local assets if it does not pay a tax bill of some Rs142bn (US$2.1bn), which is currently the subject of international arbitration.
A spokesperson for the UK-based telco confirmed that the company has “received a tax reminder from the Indian tax department that also references asset seizures in the event of non-payment”.
He noted that the Indian government said in 2014 that existing tax disputes with Vodafone and others would be resolved through existing judicial process.
“In a week when Prime Minister Modi is promoting a tax-friendly environment for foreign investors, this seems a complete disconnect between government and the tax department,” he said.
A Bloomberg report today cited a letter dated 4 February from Anil Sant, India’s deputy commissioner of income tax, to Vodafone International Holdings’ Dutch unit saying that any overdue tax fees, even from overseas companies, may be recovered “from any assets of the non-resident which are, or may at any time come, within India”.
Ravi Raghavan, a tax lawyer with Majmudar & Partners in Mumbai, expressed surprise at the news, noting that “Modi and his finance ministry have been saying on a number of occasions that retrospective taxation is a thing of the past”.
Such a notice from the tax department would, in his view, undermine government efforts to make the country friendlier to foreign investors.
“[I]t will disillusion the potential foreign investors who want tax certainty,” he told TelecomFinance. “The tax department should wait or be told to wait until the arbitration is over between the parties.”
Vodafone has been embroiled in tax disputes in the country since acquiring a 67% stake in local mobile operator Hutchison Essar from Hong Kong-based Hutchison Whampoa (now CK Hutchison) for US$10.9bn in 2007.
The UK-based telco has argued that the Rs142bn tax bill is uncalled for as the deal was carried out offshore, while the government has contended that it is warranted as the transaction involved local assets.
Over the past year, under Modi’s government, Vodafone has made some progress with related tax disputes in the country.
Last October, the Bombay High Court ruled in favour of Vodafone in a £450m (US$690m) tax case covering the treatment of a call centre and share options following the Hutchison Essar takeover.
The following month, Hasmukh Adhia, revenue secretary for the finance ministry, said Vodafone had called for a conciliation process with the government to resolve the tax disputes. He added that the government was considering the matter.
At the time, a Vodafone spokesperson said he would not comment on specific enquiries but added: “I will say, as a more general comment, that we have always made clear our openness to discussing the possibility of settlement, but the content of any discussions we may have with the Indian government remains confidential.”
Meanwhile, earlier this month, Vodafone CFO Nick Read said the company no longer expects its Indian IPO to take this place this year as it will take at least another 12 months to prepare.
CEO Vittorio Colao (pictured) noted that the company is still working on preparations for the listing and that timing depends on “bureaucratic approvals and market conditions, and on the financial market”.
Colao said last November that the company would make a decision about whether to proceed with an IPO in the 2016 fiscal year.
Vodafone has been considering an Indian IPO for several years, but the assumption has been that it would wait until its local tax cases were settled.
