17 Feb 2016
India’s tax office has issued UK-based Vodafone a demand for a payment of INR142 billion (USD2.08 billion) in relation to the group’s 2007 acquisition of Vodafone India, threatening to seize the company’s assets if it fails to make the payment, the Economic Times reports, citing a Vodafone spokesperson. Vodafone is currently involved in arbitration proceedings with the Indian government to resolve the long-standing tax dispute, which saw the government retrospectively amend tax laws in 2012 to overturn a Supreme Court decision in Vodafone’s favour. The argument revolves around the group’s USD11 billion acquisition of a 67% stake in Vodafone India (then Hutchison Essar). Vodafone claims that no tax is due on the transaction as it was conducted offshore, whilst the tax department and the government maintain that the telco is liable, as the sale covered assets in India. The initial tax demand was for INR79.9 billion, but the addition of interest and penalties has inflated the fee to an estimated INR200 billion.
In a statement, Vodafone pointed out that the actions of the tax office went against the government’s own policy: ‘In a week when Prime Minister Modi is promoting a tax-friendly environment for foreign investors, this seems a complete disconnect between government and Tax Department. The Indian government stated in 2014 that existing tax disputes, including ours, would be resolved through existing judicial process.’ The Modi administration has been fighting to dispel India’s reputation for so-called ‘tax terrorism,’ with the PM commenting earlier this week that: ‘We will not resort to retrospective taxation. And I repeat this commitment once again. We are also swiftly working towards making our tax regime transparent, stable and predictable.’