Vodafone conciliation decision after transfer pricing row ends

The government will take a decision on withdrawal of conciliation offer to Vodafone for resolving the Rs 20,000-crore (Rs 200-billion) tax dispute after a transfer pricing case concerning the UK telecom giant is settled.

"The Cabinet has decided to instruct the Income Tax Appellate Tribunal to expeditiously solve the Vodafone transfer pricing case. Once that is done, the Cabinet will review the conciliation process," a senior Finance Ministry official said after a meeting of the Union Cabinet on Friday.

Vodafone is locked in twin tax disputes with the government.

One pertains to its 2007 acquisition of Hutchison Whampoa's stake in Hutchison Essar and the other is the transfer pricing case involving Vodafone India Services.

"The Cabinet has decided not to take any hasty decision regarding review of conciliation talks with Vodafone," the official added.

The decision regarding the Vodafone conciliation offer may have to be taken by the next government as ITAT, which will hear the transfer pricing case from March 19, will take a few months to decide on the dispute.

The Cabinet had in June 2013 approved a Finance Ministry proposal to go in for conciliation with Vodafone to resolve the capital gains tax dispute related to its acquisition of Hutchison Whampoa's stake in Hutchison Essar.

While the basic tax demand is Rs 7,990 crore (Rs 79.9 billion), the outstanding dues, including a penalty of a similar amount and accrued interest, run into Rs 20,000 crore (Rs 200 billion).

Earlier this month, the Finance Ministry circulated a draft Cabinet note seeking to withdraw the conciliation talks after Vodafone demanded that the Rs 3,700-crore (Rs 37-billion) transfer pricing row be clubbed with the capital gains tax case.

It followed a notice under Bilateral Investment Promotion and Protection Agreement by Vodafone International Holdings BV to the government over the tax dispute.

It said the amendment to the I-T Act will cause Vodafone International Holdings substantial financial loss.

Image: A Vodafone store.