Vodafone writes to PM over retrospective taxation move

Days after seven global trade organisations wrote to the government that its move to retrospectively tax certain foreign transactions would hurt investment, Vodafone Plc's chief executive Vittorio Colao has written to Prime Minister Manmohan Singh that ''arbitrary and punitive retrospective treatment'' of Vodafone will tarnish India's image as an investment destination.

The move to retrospectively tax foreign transactions involving Indian assets is seen to be mainly aimed at the British telecom major, from who the government is seeking almost Rs12,000 crore as capital gains tax over its 2007 deal to acquire Hutchinson Whampoa's stake in what was then Hutchinson-Essar for $11 billion.

"We read disturbing comments in the Indian media from tax officials that they intend to use these provisions to quash the recent Supreme Court judgement and retrospectively require Vodafone to pay Hutchison's tax," Colao said in the letter.

The government had lost its case against Vodafone in the apex court in January, after which it decided to retrospectively amend the finance bill to bring such transactions under the tax net.

Last month, the Supreme Court declined to entertain the government's plea to reconsider its January ruling, and the government has subsequently refunded with interest an amount of Rs2,500 crore deposited by Vodafone in November 2010 (See: SC rejects government's review petition in Vodafone tax case).

The new finance bill, if passed by Parliament, could potentially also impact companies such as AT&T and GE that have carried out transactions in which a significant part of the assets are in India. In fact it could affect nearly 20 other transactions, including those involving the Tata Group, the Birla Group, and Vedanta Resources Plc.