Govt appoints arbitrator for Vodafone tax dispute

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The government has appointed former chief justice of India RC Lahoti as arbitrator in the Rs 20,000 crore Vodafone tax dispute following an arbitration notice sent by the UK-based telecom major.

Following the arbitration notice on April 17, the erstwhile UPA government withdrew its conciliation offer to Vodafone on May 15. While conciliation outcome is not binding on both the parties, an arbitration verdict is mandatory for the two parties to implement.

The UPA government had cleared conciliation with Vodafone in June last year to resolve the dispute arising out of the demand of capital gains tax made in 2007 following the UK company’s acquisition of Hutchison Whampoa’s 67 per cent stake in Hutchison Essar.

While the basic tax demand was Rs 7,990 crore, the total outstanding, including interest and penalty, adds up to around Rs 20,000 crore.

The Supreme Court had ruled in Vodafone’s favour in 2012, saying the company was not liable to pay any tax over the acquisition of assets in India from the Hong Kong-based Hutchison. This prompted the UPA government to initiate retrospective amendment to the Income-Tax Act, justifying that this was a clarificatory amendment in nature.

Though the government has now appointed an arbitrator, the finance ministry has prioritised resolution of tax disputes involving telecom companies, telecom minister Ravi Shankar Prasad said on Tuesday. There are already indications that retrospective tax amendment would be withdrawn in the budget likely to presented in the second week of July. This is one of the promises made by the BJP in its election manifesto.

Prasad did not want to be drawn into individual cases, but he made it clear that retrospective tax amendments should be avoided. Several tax experts too have argued that retrospective tax amendments is bad in law and if tax rules have to be changed, it has to be done prospectively.

Vodafone, in its notice, said it wanted to move ahead with the arbitration without waiting for the ITAT decision on the Rs 3,700 crore transfer-pricing case. Vodafone is locked in twin tax disputes with the government. One pertains to its 2007 acquisition and the other is the transfer-pricing case involving Vodafone India Services.

There were also reports that government would withdraw the conciliation talks after Vodafone demanded that the transfer-pricing row be clubbed with the capital gains tax case.

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