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Govt sticks to stand on Vodafone tax issue

PTI     May 7, 2012
Ruling out any negotiations with Vodafone in the Rs 11,000-crore tax dispute case, the Finance Ministry on Monday said it would reply to the notice given by the British telecom majo r after passage of the Finance Bill by Parliament.

"How can the government negotiate with Vodafone?" a top finance ministry official said when asked whether government is contemplating to waive penalty and interest in respect of the tax liability of Vodafone.

Vodafone had last month sent a notice to the Indian government
threatening international arbitration in the tax dispute case.

Invoking the investment treaty between India and the Netherlands, the company had alleged that the proposed retrospective amendment violated the international legal protections granted to Vodafone and other international investors in India.

The government has set up inter-ministerial group (IMG) headed by Finance Secretary R S Gujral to formulate its response to Vodafone's notice.

Referring to Finance Minister Pranab Mukherjee's statement in the Lok Sabha on Monday, the official said, "nothing has changed on Vodafone issue post the statement."

Mukherjee has said that retrospective amendment to the Income Tax Act to tax capital gains on sale of assets located in India through indirect transfer abroad will impact those deals which are routed through "low tax or no tax countries with whom India does not have a Double Tax Avoidance Agreements (DTAA)".

The British telecom major Vodafone signed the $11.2 billion deal to acquire stake of Hutchison in Hutchison Essar was executed in Cayman Islands in 2007.

India does not have a DTAA with Cayman Islands and does not have an intention to sign the pact with it, the Finance Ministry official said.

Normal procedure would be followed in the Vodafone case, the official said, adding the company would be free to approach settlement commission or any other appropriate forum for relief.

Recently, Vodafone Group CEO Vittorio Colao met Mukherjee and presented the company's case to the government. Vodafone India's Non-Executive Chairman Analjit Singh has also met Gujral thrice on the issue.

The Vodafone tax controversy pertains to Mukherjee's Budget proposal to amend the Income Tax Act, 1961, with retrospective effect to bring into tax net overseas mergers and acquisitions involving domestic assets.

The move followed the Supreme Court ruling that Vodafone wasn't liable for taxes stemming from its acquisition of Hutchison's stake in Hutchison-Essar.

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