Indian Government May Scrap Talks Over Vodafone's $2.4 Billion Tax Bill
Published on: 12th Feb 2014
By: Ian Mansfield
The Indian government is reportedly considering scrapping negotiation with Vodafone over its controversial tax demands.
The two sides agreed to enter conciliation talks last year to avoid the issue being filed with International Arbitration as Vodafone had threatened.
At stake is a tax demand for USD2.4 billion relating to Vodafone's original investment in the country in 2007.
Although Vodafone took control of the then Hutchison Essar back in 2007, the transaction was routed via offshore subsidiaries. As this is a common practice for many companies, Vodafone felt that no taxes were due in India. The government's counter-argument is that the location of the assets, not the jurisdiction of the transaction is the primary issue.
India's Finance Ministry has proposed canceling the conciliation talks, and its suggestion will be debated by the Indian Cabinet, although why it wants to walk away from the talks is currently unclear.
However, some reports suggest that Vodafone is to blame for the breakdown in the talks, although Vodafone has long indicated publicly at least that it would favour a settlement simply to get rid of the problem.
The government though, facing an unexpected windfall from the ongoing radio spectrum auction may have felt that it can take longer over the dispute as it has less need to settle early for a lower sum from Vodafone.
The uncertainty over the tax affair will heighten concerns from investors about the lack of clarity with India's tax laws. Investors place a high value a stable tax code and legal framework when considering whether to invest in a country.