India’s income tax department has asked Vodafone to re-submit its tax return for the year 2009-10 for further review.
The operator group has faced ongoing tax issues in India since its acquisition of a holding from Hutchison in 2007. Vodafone is now pursuing arbitration in the face of an INR200 billion ($3.2 billion) tax claim relating to this deal.
The tax authority is reportedly claiming that it needs to assess how much of Vodafone’s income over this period “escaped assessment” and therefore is eligible for outstanding tax claims. The operator has 30 days to respond, but cannot query the motivation behind the reassessment until after it has taken place.
In October, the Bombay High Court ruled in Vodafone’s favour regarding a transfer pricing dispute that would have required it to hand over INR30 billion in taxes. However, in December another transfer pricing tribunal deemed that the government had the authority to request INR85 billion in tax payments from the operator.
The unpredictability of India’s tax authorities has attracted criticism from the business community, with claims that excessive red tape has deterred foreign investment. In particular Martin Pieters, Vodafone India CEO until very recently, complained on his last day that during his 6 year tenure the operator had been unable to pay its shareholders anything while handing over INR750 billion ($13.9 billion) to the government.
Addressing these issues, Finance Minister Arun Jaitley said: “I am acutely aware that there are concerns about retrospective taxation, tax harassment, unpredictability and arbitrariness on tax administration, especially relating to transfer pricing. Let me emphasise that we are committed to a transparent and predictable tax regime.”