New Delhi: India's income tax authority is planning to ask British telecommunication services provider Vodafone Group Plc to pay Rs 130 billion in taxes, a day after finance minister Pranab Mukherjee announced that the proposal to amend tax laws with retrospective effect will not be withdrawn, though clarifying that it will not bring under the tax net cases where assessment orders have been finalized, The Times of India reported Tuesday, citing sources.
The tax department has already prepared the demand notice and will serve it on the company soon after the Budget gets presidential assent, the sources said, adding the demand will include Rs 79 billion in taxes and the interest.
Earlier March, Mukherjee had introduced a clarification in tax rules in the Finance Bill, 2012, to bring under the tax net all cross-border mergers and acquisition deals involving Indian assets or businesses, with effect from 1962 when the rules were written.
The government had later clarified that under the Income Act, the revenue department cannot reopen cases of beyond six years.
The finance minister, while initiating a discussion on the Finance Bill, Monday said that the retrospective clarificatory amendment, now under the consideration of Parliament, will not be used to reopen cases where assessment orders have already been finalized and the tax department has given its go-ahead.
The retrospective clarification, he said, will only apply to cases where the transaction has been routed through low tax or no tax countries with whom India doesn't have a Double Taxation Avoidance Agreement (DTAA).
Although a final assessment has been made in the Vodafone case, it will remain affected because the transaction was routed through Cayman Islands, with which India doesn't have a DTAA. Also, the tax department has been maintaining that the British telecom giant is liable to pay Rs 112 billion ($2.2 billion) in taxes over the company's $11-billion purchase of Hutchison group's Indian operations, and it had intimated the company about its tax liability before the conclusion of the transaction.
Vodafone, the world's largest telecom operator, says it is not liable to pay tax on the deal, and that the seller Hong Kong-based Hutchison Whampoa Ltd should be asked to pay the taxes. The tax department has countered Vodafone, arguing that the company should have deducted tax before making the payment to Hutch.
The tax wrangle has continued to trouble the telecom major despite the Supreme Court ruling in its favor, holding it is is not liable to pay Rs 112 billion ($2.2 billion) in taxes.
Vodafone, in April, served a notice of dispute on the Indian government, and threatened to invoke international arbitration proceedings over new retrospective tax proposals.