New Delhi: The Indian government's tax demand on Vodafone Group Plc will likely exceed Rs 200 billion against the original Rs 112 billion ($2.2 billion) over the British company's $11-billion purchase of Hutchison group's Indian operations in 2007 on account of failing to deduct tax at source and payment of interest on tax dues, the Business Standard reported citing an unidentified finance ministry official Wednesday.
The Indian tax authority has estimated the British telecom giant's tax dues at Rs 203 billion, including tax of Rs 79 billion on the transaction, interest of about Rs 45 billion, which is being calculated at a rate of 1% per month, and a penalty of Rs 79 billion.
The tax authority will be eligible to levy penalties on tax dues as this will not be a fresh demand, but will only be a revival of the demand notice sent to Vodafone earlier.
"There is no need to raise a fresh demand. 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," the official said.
Further, the Ministry of Finance may go ahead with the tax demand despite the Supreme Court of India's ruling in favour of Vodafone, as the validation clause proposed in the Finance Bill 2012 will legalize the tax authority's demands under the Income Tax Act in few deals.
Meanwhile, the British telecom operator Tuesday denied that the company was notified by the tax authority about the tax liability on its purchase of Indian operations from Hutchison.
"At no point before the transaction concluded and the payment was made did any entity of the Vodafone Group receive any communication at any of its business addresses from the Indian Tax Authorities requesting a payment of withholding tax," Vodafone said in a statement.
Earlier, Finance Secretary R S Gujral had said that the tax authority had informed Vodafone in March 2007 that its transaction was liable to tax and the company had been trying to avoid taxes in India by forming tax avoidance structures.
"This structure as well as the transaction was examined in detail by the Supreme Court, which concluded that it was a bonafide structured FDI (foreign direct investment) investment into India which fell outside India's territorial tax jurisdiction and therefore not taxable," Vodafone said in a statement following Gujral's comments.
Vodafone, earlier this month, served a notice of dispute on the Indian government, and threatened to invoke international arbitration proceedings over new retrospective tax proposals.
The Indian government in the Union Budget 2012-13 proposed a clarification in tax rules 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.
On January 20 this year, the Supreme Court of India ruled in favor of Vodafone, dismissing $2.2 billion tax demand by the Indian tax authority from the company on its acquisition of Indian operations of Hutchison.
The apex court said that the income tax department has no jurisdiction over Vodafone's buyout of overseas entities, routed through other foreign companies, as the deal happened between two foreign entities outside the purview of the country's tax authority.