Indian government officials are set to meet with Vodafone executives next week over a demand for unpaid taxes stemming from the UK-based operator’s original entry into the Indian market, reports Dow Jones Newswires.
Authorities have long insisted that Vodafone (Newbury, UK) owes in excess of $2 billion on its acquisition of a controlling stake in India’s Hutchison Essar in 2007, and sent the company another tax bill earlier this month.
Vodafone insists that it owes nothing on the transaction because it was conducted outside India – between Vodafone’s business in the Netherlands and a unit of Hutchison registered in the Cayman Islands.
In January 2012, India’s Supreme Court ruled in Vodafone’s favor, prompting chief executive Vittorio Colao to say “we are committed long-term investor in India and we have made clear all along that we have faith in the Indian judicial system”.
Yet the government – desperate to plug a hole in its budget – immediately responded by introducing a new law that allows retroactive taxation of transactions where foreign companies have acquired domestic assets.
The legislation was panned by the international investment community as further evidence of the increasingly frosty attitude towards foreign-backed businesses.
A parallel development to the Vodafone tax battle has been the 2G spectrum licensing scandal, resulting in the cancellation of permits owned by a number of foreign investors, including Norway’s Telenor (Fornebu, Norway) and Russia’s Sistema (Moscow, Russia).
Citing a government official familiar with the matter, Dow Jones Newswires reports that Sumit Bose, India’s Revenue Secretary, and Poonam Kishore Saxena, the chairman of India’s Central Board of Direct Taxes, are due to meet representatives of Vodafone to discuss the tax issue next week.
Vodafone could be liable for a total bill of about $3.75 billion, including interest and penalties, according to earlier reports, although there is some optimism that talks could lead to an amicable settlement.