India's finance minister Arun Jaitley offered a one-time chance to foreign investors to settle long pending tax disputes, that will help companies like Vodafone and Cairn Energy to settle contentious tax issues arising out of retrospective amendments that have been pending for over three years.
“I propose a one-time scheme of dispute resolution for them. They can settle the case by paying only the tax arrears in which case liability of the interest and penalty shall be waived,” he said while presenting the budget. Media reports suggested that later, Economic Affairs Secretary Shaktikanta Das said the comments were directed towards Vodafone and Cairn which owe £2.1 billion and £2.05 billion respectively, in taxes. However, if both the companies settle the case under the latest government scheme, they will have to pay only the original tax demand of about £800 million and £1.02 billion respectively. The one time settlement requires the company to “withdraw any pending case lying in any court or tribunal or any proceeding for arbitration, mediation, etc. under BIPA”.
Partner of Ashok Maheshwary & Associates, Ashok Maheshwari said, “It's a good move considering that they (government) have not recovered a penny till now in such cases. Some companies may pay up and buy peace to avoid long term litigation costs. The move is in line with the P Shome committee recommendations.” Vodafone has initiated international arbitration proceedings under BIPA against the government claim under the bilateral investment treaty taxes as capital gains levy for its purchase of Hutchison assets in February 2007.
Government claims that Vodafone should have deducted capital gains tax when it made the USD 11 billion payment to Hutchison while purchasing its India assets. While the argument was invalidated by the Supreme Court in Feb 2011, the then government introduced retrospective tax in that year's budget, prompting Vodafone to challenge the validity of the claim. A company spokesperson said, “We will of course study the detail of what the Finance Minister has proposed today, while continuing to seek resolution of this matter through international arbitration. Vodafone has always maintained that there was no tax to pay at the time it completed its acquisition of Hutchison's business in 2007. This view was upheld unanimously by the Supreme Court of India in January 2012. Furthemore, Vodafone was the acquirer in this transaction. The company made no capital gain whatsoever. Given the clarity of the India law in force in 20017, there was no legal basis to withhold tax.”
