Vodafone landed a punch after India’s tax department sent them a fresh tax reminder in an ongoing $2.1 billion retrospective tax dispute, currently under international arbitration.
The tax department’s notice said Vodafone’s assets in the country may be seized if the company fails to pay the tax bill of $2.1 billion.
In its reply, the global telecom giant said the notice only proves a complete disconnect between the central government and the tax department in a week when Prime Minister Modi is promoting a tax-friendly environment for foreign investors.
According to the tax department’s letter, any overdue amounts, even from overseas companies, may be recovered “from any assets of the non-resident which are, or may at any time come, within India.”
The order is contrary to the views held by Prime Minister Narendra Modi and Union Finance Minister Arun Jaitley that retrospective taxation practices are a thing of the past.
Modi, while addressing business leaders of France and India in January, had said his government is known for its stable and predictable tax regime.
While it’s not clear what steps the government is going to take against Vodafone, the case will influence foreign investors’ perception of India.
The dispute goes back to Vodafone’s $11 billion acquisition of a 67% in the mobile-phone business owned by Hutchison Whampoa, now part of CK Hutchison Holdings Ltd.
While Vodafone has said it does not owe the Indian government money because the transaction was conducted offshore, Indian authorities have sought to collect taxes on the deal because it involved the assets in the country.
Vodafone began international arbitration proceedings on the tax bill in 2014. It is the biggest of three disputes Vodafone has had with India’s government under Modi’s predecessor.
The other disputes involved the valuation of international transactions — a case that Vodafone won at the Bombay high court— and a separate ruling in October, whereby the court ruled that Vodafone did not owe as much as Rs 8,500 crore in back taxes.