Cabinet keeps window open for conciliation with Vodafone

Softening its earlier stand on the seven-year-old tax dispute with London-based mobile services provider Vodafone Plc, the Indian union cabinet has decided not to close the door on a negotiated solution, but to continue seeking a negotiated settlement through the Income Tax Appellate Tribunal (ITAT).

The move gives a reprieve to Vodafone, as the income tax authorities will not be able to serve it demand notices for recovery of tax dues totalling Rs24,000 crore.

While there was no official announcement, officials in the finance ministry told various media outlets that the cabinet has decided not to take a hasty decision on conciliation talks with Vodafone. It has decided to instruct ITAT to expeditiously solve the transfer pricing case. Once that is done, the cabinet will review the conciliation process.

The ministry had earlier suggested the cabinet withdraw the conciliation offer after the British major insisted the transfer pricing case also be included with the 2007 issue pertaining to acquisition of Hutchison Whampoa's stake in Hutchison Essar. Besides, it wanted conciliation under international laws; the Indian government insisted on domestic law. As the talks got stuck, Vodafone sent a notice to the government under the Bilateral Investment Promotion and Protection Agreement (BIPA).

In the other dispute, Vodafone is fighting a Rs3,700 crore transfer pricing demand with tax authorities for a transaction in 2008-09. Recently, it moved court for another pricing case of Rs 3,200 crore pertaining to 2009-10. As the first transfer pricing case is coming for hearing at ITAT on March 19, its settlement is not likely before the Lok Sabha elections.