Friday, 21 February 2014

Vodafone says pricing dispute related to Hutchison’s assets buy

NEW DELHI: Vodafone Group Plc and the government are back on a collision course. The UK telecom major has stuck to its stand that the Rs 8,500-crore transfer pricing dispute is part of the broader tax row related to its purchase of Hutchison's assets and needs to be a part of any conciliation process, a contention which apparently provoked New Delhi to move to call off settlement talks last week.
"In seeking to tax the full value of the Hutchison Essar sale and then to claim tax on an alleged transfer of options in the Hutchison Essar sale, the (Indian) government is seeking to tax one event twice," Vodafone said in a statement on Wednesday. It added that the Supreme Court, as part of its verdict in 2012, had already examined the transfer pricing case in detail and ruled that there was no "transfer or assignment of call options in the Hutchison Essar sale".

Indian tax authorities had imposed a tax liability of Rs 11,200 crore on Vodafone for failing to deduct tax on its $11.07-billion payment to Hutchison Telecommunications International in 2007. While the apex court had ruled in the operator's favour that there was no tax due, the government amended the laws to sidestep the order. Including interest and penalties, the tax liability is now about Rs 20,000 crore. Separately, the tax department also slapped a demand notice in connection with the sale of the call centre business to Hutchison Whampoa Properties India and alleged assignment of call options to a unit.

The transfer pricing dispute on the "alleged options transfer is entirely included within the dispute about tax on the Hutchison Essar sale" and, as such, also forms part of Vodafone's notices of bilateral investment treaty claims against India, the company said.

The war of words marks an unexpected reversal in attempts of the two parties to resolve the issue, which has dented India's image as an investment destination. New Delhi had been working particularly hard to encourage investors, especially from overseas, to invest in the country, especially since growth has slumped to a 10-year low. The tax demand had been kept in abeyance amid the conciliation effort.

Vodafone's comments come a week after it was revealed that the finance ministry is about to move a final Cabinet note withdrawing the conciliation offer which was made about eight months ago. Government officials said that New Delhi's step back came after the UK-based telco wanted the scope of the conciliation talks to be widened to include the transfer pricing dispute. The comments come a day after finance minister P Chidambaram's comments to ET Now that Vodafone's indecision had led to the conciliation process getting stuck.

Vodafone, "buffeted with multiple legal advisors is unable to make up its mind whether it wants to begin conciliation. So I have waited long enough for conciliation to begin, I am willing to wait for a little more time but at some point of time we have to face the reality and say despite the best effort the government, Vodafone is unwilling to begin conciliation," Chidambaram had said.

On Wednesday, Vodafone said it started talks with the government "in good faith and with a desire" and has always responded to New Delhi's queries on time, despite on one occasion India taking six months to reply to one of its letters.

It added that senior Vodafone executives have met ministers and government officials on several occasions in an attempt to resolve the long-standing tax dispute. It said the government rejected all the mobile operator's offers of resolving the impasse, including through established international conciliation mechanisms, such as under the United Nations Commission on International Trade Law.
"Consequently, discussions have focused on seeking to establish whether or not a mechanism existed under Indian law which would allow for the possibility of a negotiated resolution of the tax dispute in a manner which did not prejudice Vodafone's legal rights or the interests of its shareholders and which also took into account the government's own objectives," it said.
Source: Economic Times

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