Govt considers dropping Vodafone tax case to shake ‘tax terrorism’ reputation

28 Nov 2014

India’s attorney general, Mukul Rohatgi, has recommended against appealing a recent ruling from the Mumbai high court regarding a tax dispute with Vodafone India, the Financial Times writes, citing three people familiar with the situation. The Mumbai court ruled in favour of the UK-based cellco last month in a long-running INR30 billion (USD485.4 million) row over transfer pricing, an area which covers how global companies account for services provided or property transferred between local subsidiaries and other arms of the same organisation. The recommendation not to press the case is part of PM Narendra Modi’s efforts to alter India’s reputation for aggressively pursuing tax disputes, a policy often referred to as ‘tax terrorism.’ Rohatgi’s suggestion is likely to face fierce resistance from the revenue service, which supported the previous administration’s policy of appealing such decisions to the Supreme Court. A number of other international firms engaged in disputes with India’s tax authorities, such as oil group Shell, are expected to see some relief should the cabinet accept the recommendation. However, the change of tack will not have an impact on Vodafone’s other major tax case, which relates to the group’s USD11 billion acquisition of Hutchison Whampoa’s stake in then Hutchison Essar in 2007. Vodafone and the Indian government are currently involved in negotiations regarding the selection of a third arbitrator to help resolve the INR200 billion battle, although Vodafone may yet take the case to the International Court of Justice if an agreement cannot be reached.

India, Vodafone India