Hit with huge bill, Vodafone slams India’s ‘double taxation’ standards

Vodafone, stung by the decision of a cash-hungry Indian government to apply new rules on retrospective taxation and press its demand for as much as Rs20,000 crore ($3.2 billion) in back taxes and penalties, has countered by saying gains from the overseas transaction in which it bought out Hutchinson's Indian operations and a separate transfer pricing notice relate to the same deal, and should be considered together for conciliation.

"The Vodafone India Services (VISPL) transfer pricing dispute on the alleged options transfer is entirely included within the dispute about tax on the Hutchison-Essar sale," the UK-based telecom operator said in a statement.

"In seeking to tax the full value of the Hutchison-Essar sale and then to claim tax on an alleged transfer of options in the Hutchison Essar sale, the government is seeking to tax one event twice," the Vodafone statement further said.

It added that the Supreme Court, as part of its verdict in 2012, had already examined the transfer pricing case in detail and ruled that there was no "transfer or assignment of call options in the Hutchison Essar sale" (See: SC rejects government's review petition in Vodafone tax case ).

The UK telecom company also said it responded in time to all government communication on the conciliation process initiated to resolve the Rs20,000 crore capital gains tax case arising from its purchase of a stake in Hutchison-Essar.

The statement came a day after union finance minister P Chidambaram told PTI in an interview that Vodafone has not been able to make up its mind on whether to go forward with conciliation and it is up to the revenue department to enforce the tax notice on it.

Conciliation talks broke down after Vodafone International Holdings BV issued a supplementary notice to the government invoking the Bilateral Investment Promotion and Protection Agreement, and demanded that the transfer-pricing case be clubbed with the capital gains tax matter (See: Finance ministry calls off conciliation in Rs20,000-cr Vodafone tax case).

Vodafone said that it had entered into discussions with the Indian government in good faith, with a desire to achieve a fair outcome acceptable to both parties. "Throughout, Vodafone has responded to the government's queries in a timely manner, notwithstanding, at one point, a six-month delay by the Indian government in responding to correspondence sent by Vodafone," the statement said.

The Cabinet had in June 2013 approved a finance ministry proposal to go for conciliation with Vodafone to resolve the capital gains tax dispute related to its acquisition of Hutchison Whampoa's stake in Hutchison Essar in 2007 (See: Cabinet approves conciliation in $2 bn Vodafone tax row).

The basic tax demand for the acquisition that was concluded in Hong Kong, Hutchinson Whampoa's base, is Rs7,990 crore, while alleged outstanding dues, including a penalty of a similar amount and accrued interest, run into Rs20,000 crore.

Vodafone sought to club a Rs3,700 crore transfer-pricing case of VISPL with the capital gains tax issue, but this was not acceptable to the finance ministry.