Indian gov to settle tax clash with Vodafone and return bank guarantees

Indian gov to settle tax clash with Vodafone and return bank guarantees

The Indian government is expected to return around INR447 million (US$6 million) to Vodafone Group to settle a 14-year tax dispute.

In 2007, Vodafone Group acquired a majority holding in Indian mobile operator Hutchison Essar to enter the Indian market. According to India’s Income Tax Act of 1961, Vodafone was not required to pay tax on this transaction – despite attempts by the government to do so. In January 2012, the Indian Supreme Court ruled in favour of Vodafone Group.

To ensure that such deals would be taxed going forward, in May 2012 the then Finance Minister proposed an amendment to the Finance Act. However, the government chose to allow the Income Tax Department to apply the tax retrospectively, meaning it could continue seeking taxes from Vodafone – and thereby prolonging the dispute.

Even after a September 2020 ruling in Vodafone’s favour by an international tribunal at The Hague, the Indian government still dismissed the result and filed an appeal against it in early 2021. However, in August this year India’s government moved to amend the Income Tax Act to nullify the demands. Vodafone has now filed for an application to settle the dispute.

In a statement to India’s Economic Times, Vodafone Group said: “We can confirm we have filed an application. We have always been confident that no tax liability arose in respect of our acquisition of the Indian business, and this was borne out by the decisions of the Supreme Court of India and the International Court of Arbitration.”

CommsUpdate reports that the Indian government’s decision appears to be aimed at improving perceptions of its stance on taxation in order to encourage foreign investment into the market. In line with this, the government has implemented financial and regulatory reforms aimed at reducing pressure on operators.

In September this year, it slashed the bank guarantee requirement for dues – including licence fees - from 100% to 20%, and is now returning these to operators including Bharti Airtel and Vodafone Idea (Vi). These operators have respectively received INR35 billion of a total INR80 billion, and INR25 billion of a total INR120 billion.

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