Vodafone top brass meets Pranab

Ahead of a scheduled discussion in Parliament on the Finance Bill, 2012, for its clearance next week, top bosses of Vodafone Plc met senior functionaries of the government on Tuesday to discuss tax issues that have emerged due to the proposed retrospective amendments in the Income Tax Act, 1961.

The meeting that Vodafone CEO Vittorio Colao and the company's India non-executive chairman, Analjit Singh, held with Finance Minister Pranab Mukherjee and his senior officials, including finance and revenue secretary R S Gujral, lasted more than an hour. Mukherjee later said the Vodafone officials presented their case before him.

After the meeting, Mukherjee was closeted with senior officials of Vodafone for about 10 minutes. No ministry official was present during this interaction.

Colao told reporters later, "we presented our case". He declined to give details.

It is learned the finance minister told the Vodafone officials that Parliament would take a final call on the retrospective amendments proposed in the Finance Bill, 2012, and he could not give any assurance to the company on this count.

Ministry officials said the inter-ministerial group headed by Gujral was likely to meet in a day or two to reply to Vodafone's notice for arbitration under the Bilateral Investment Promotion Agreement (BIPA) with the Netherlands.

"The government may tell Vodafone that tax issues are not covered under the BIPA," said an official associated with the process. Waiving the penalty in the case of Vodafone might set a bad precedent, he added.

The government has proposed to amend the Income Tax Act, 1961, with retrospective effect in a manner that will clarify the tax implications and bring into the tax net any Vodafone-type

merger and acquisition deals involving domestic assets.

Once Parliament approves the amendment, the government is likely to initiate the process of raising again the tax demand on Vodafone's acquisition of Hutchison's stake in Hutchison Essar in 2007.

Earlier, the Supreme Court had set aside I-T department's demand for the tax. It had subsequently rejected a review petition of the government.

After enactment of retrospective amendments to the Income Tax Act, the government may ask Vodafone to pay over Rs 20,000 crore (Rs 200 billion) -- more than two-and-a-half times of the tax amount the telecom major was "advised to withhold" in its $11-billion deal with Hutchison in 2007.

The retrospective amendments and a validation clause legalising the tax demand despite the Supreme Court quashing would empower the tax department to restore the earlier demand.

The department has estimated Vodafone's dues at Rs 20,300 crore (Rs 203 billion). This comprises tax of Rs 7,900 crore (Rs 79 billion) on the transaction, interest of about Rs 4,500 crore (Rs 45 billion) and a penalty of Rs 7,900 crore for failure to deduct tax at source.

"There is no need to raise a fresh demand," said a finance ministry official. "We have not amended the law. The intent of the law has always been the same and we just clarified it… The earlier demand stays and they may be asked to pay interest and penalty on that," he added, not wishing to be identified.