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Corporate Mar 22, 2012

India to issue tax demand against Voda after law changes

British telecom major Vodafone will have to pay over Rs 11,000 crore tax, once the amendment to change the Income Tax Act is approved by Parliament, a Finance Ministry official said today.

The government intends to issue a new tax demand after parliament passes retroactive legislation allowing authorities to tax capital gains by foreign companies on Indian assets.

"They are expected to issue a new tax demand (against Vodafone after the law changes). It is correct," he said on anonymity.

AFP

The government refunded Rs 2,500 crore along with 4 percent interest to Vodafone following dismissal of its review petition against January 20 order by the Supreme Court. The government had raised a Rs 11,000 crore withholding tax demand on UK-based telecom firm for its $11 billion acquisition deal with Hutchison Essar in 2007.

According to the Finance Ministry official, "an important question is about equity in taxation. While ordinary tax payer pays its taxes honestly, those who have huge wealth do not pay taxes by taking recourse to tax avoidance through creation of multiple structures and routing their investments through low tax and no tax jurisdiction."

Meanwhile, in an exclusive interview with CNBC-TV18, Vodafone chairman Analjit Singh said that despite the legal tussles, Vodafine remains committed to India. "There is no question of pulling out of India," he said

.He said that the dismissal of the review makes it clear that Vodafone is not liable for tax, adding that i is quite unfortunate that the government is pushing to amend a law to tax Vodafone. "The retrospective amendment is grossly unfair to Vodafone and in gerenal, will not augur well for FDI," he says.

The Congress-led government announced the plan last week to introduce legislation amending the income tax act, a move seen by observers as aimed at Vodafone.

Lawyers have said re-opening the tax case would revive uncertainty about India's regulatory climate when the nation badly needs foreign investment to upgrade its dilapidated infrastructure and spur slowing growth.

The Supreme Court rejected in January the tax imposed by the government over Vodafone's $10.7-billion takeover of Hong Kong-based Hutchison Whampoa's Indian cellular subsidiary in 2007.

The court said the Vodafone transaction fell outside India's tax jurisdiction as it was concluded outside the country between two foreign firms -- even though it involved an Indian asset.

Under the planned legislative change, domestic and foreign companies will have to deduct capital gains tax on any deals involving an Indian asset, even if the transaction is completed offshore.

Earlier this week, the Supreme Court rejected a government plea asking it to reconsider its Vodafone judgement.

Indian tax officials contend Vodafone should have withheld the amount the seller, Hutchison, would have owed in capital gains when it bought the Indian mobile unit.

The tax change would be retroactive to 1962, although the government has said it only plans to reopen cases going back six years.

The government has said there are many acquisitions to which the retroactive legislation could apply.

Agencies

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