I-T dept reminds Vodafone on Rs 11,200 crore tax dues

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Income tax authorities have reminded Vodafone that the company owes around Rs 11,200 crore in tax liabilities, arising out of acquiring Hutchison Whampoa’s India operations in 2007.

But, the company is in no mood to oblige the taxation sleuths. Vodafone has shot back reiterating its belief that “no tax is payable on the above (acquiring Hutchison Whampoa India) transaction”.

Indian government slapped tax demand on Vodafone that made Rs 11,200 crore acquisition.

The company said the tax reminder did not include a deadline for payment of its liabilities. This is likely to further fuel rumours of a possible deal between Vodafone and the taxmen that might see that company let off the hook. One possibility doing the rounds is that the company would be required to pay only the tax amount of Rs 11,200 crore and in return I-T department would forego Rs 7,900 crore penalty levied in 2011.

Rumours and speculations aside, the strongest indication of a go-slow on this case has come from finance minister P Chidambaram himself. He said in September 2012 that the government would not act “rashly” in the Vodafone case. He said that a stable tax regime and good governance, among other factors were necessary for continuing to attract foreign investment.

The case dates back to 2007 when Vodafone, one of the largest telecom companies in the world, entered India through its purchase of Hutchison Essar Limited (HEL). The $11.2 billion transaction took place between Vodafone International Holdings BV based in Netherlands and a Cayman Islands based company that held stake in HEL.

The Indian tax department ruled that the April 2007 transaction fell within the ambit of India’s tax laws since the shell company in the Cayman Islands derived its value from assets and operations based in India. Vodafone believed otherwise. After the Supreme Court sided with Vodafone on the matter, India’s Parliament passed legislation that retrospectively amended India’s tax laws. The amendment brought such overseas transactions within the taxman’s radar leading several investors to cry hoarse.

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