Vodafone reopens talks with new govt over Rs20,000 cr tax demand

With a new government in place, representatives of Britain's Vodafone Plc on Friday met senior finance ministry officials, including finance secretary Arvind Mayaram, as it continues to seek a resolution of its Rs20,000-crore dispute with Indian tax authorities.

Led by external affairs director Matthew Kirk, the Vodafone team also discussed its future investment plans in India with senior officials.

''They said they are very enthused by the way the new government has set policy priorities. Once Vodafone finalises their investment plans, they would share them with us,'' Mayaram said after the meeting.

Vodafone, giving up hopes of an amicable settlement with the previous United Progressive Alliance government, had served an arbitration notice on the government in April over the much-disputed crore tax demand raised through a retrospective law over its 2007 buyout of Hutchison Whampoa's stake in Hutchison Essar.

In its notice on 7 April, Vodafone said it will go ahead with international arbitration, preferably in London, and has given the government two months' time for a response, which may mean the new government will have to take a call on the issue.

The tax department and Vodafone have been locked in a dispute since 2007 over the telecom company's $11-billion acquisition of Hutchison Essar Ltd, now known as Vodafone India Ltd, in an overseas deal. The tax demand, which was initially around Rs8,000 crore, has now more than doubled to Rs20,000 crore after adding interest and penalty.

Vodafone International Holdings BV has filed for arbitration under the bilateral investment protection agreement between India and the Netherlands, questioning the government's enactment of the retrospective tax laws in 2012 that made the telecom company liable to pay tax even after a favourable judgement by the Supreme Court.

Now, it is exploring the waters with a new, professedly business-friendly government in place.

Vodafone has not yet actually filed for arbitration, no doubt expecting that the new government would not enforce a retrospective law that has drawn much flak from the international business community seeking to invest in India.

In 2007, Vodafone International Holdings, a Dutch unit of the British telecom firm, bought the Indian business operations of Hutchison Telecommunications International Ltd through the purchase of a Cayman Islands-based firm called CGP Investments Ltd, a unit of Hutchison.

The Indian tax department has estimated that Vodafone should have withheld part of the amount as tax while paying Hutchison. Vodafone and the tax authorities went to court to resolve the issue.

The Supreme Court, in its judgement in January 2012, said the deal was not taxable in India. Subsequently, the government introduced retrospective amendments to laws to bring such indirect transfer of shares under the tax net. It also introduced a validation clause that made Vodafone liable to pay tax in India despite the apex court's judgment.