Vodafone heads huddle with Pranab over 'retro' tax; but no luck yet

Vittorio ColaoTop officials of Vodafone Plc, including group chief executive Vittorio Colao and recently appointed non-executive chairman Analjit Singh, today met finance minister Pranab Mukherjee and other officials in connection with the retrospective tax amendments proposed in this year's finance bill, due to come up for parliamentary approval next week.

The meeting included finance and revenue secretary R S Gujral, chairman of the Central Board of Direct Taxes Laxman Das, joint sectrary (international taxation) S K Mishra. It lasted over an hour. After this, Mukherjee was closeted with the Vodafone bosses for another 10 minutes, with no other officials present.
 
After the meeting, Colao told keenly awaiting reporters reporters, "We just presented our case to the finance minister."
 
Mukherjee was equally non-committal, simply rephrasing Colao's words - "Vodafone made a presentation of their case."
 
The move to amend tax laws with retrospective effect is seen as mainly aimed at extracting over Rs11,000 crore from Vodafone over its 2007 buy-out of Hutchinson Whampoa's majority stake in what was then Hutchinson Essar in a $12-billion deal. The Supreme Court threw out the taxman's claim earlier this year on the ground that the entire deal was conducted abroad between two foreign entities; and hence was not taxable in India.
 
The government then moved to amend the tax laws retrospectively with effect from 1962 in order to tax such foreign transactions that involve Indian assets.
 
Analjit Singh, founder and chairman of Max Healthcare and Max Bupa Health Insurance Co, was inducted on the Vodafone board in February, in a move seen as a first step towards Vodafone getting listed on the Indian bourses. However, this is unlikely to happen in the present scenario.
 
Most multinationals and foreign governments don't object to the amendment of tax laws; it is the proposed retrospective effect that has got their dander up. They say, not without cause, that they had bought their Indian assets in good faith under the existing government policies; and retrospective taxation on such transactions is a travesty of natural justice.
 
According to a report, Mukherjee privately refused to give the Vodafone officials an assurance that the bill's provisions would be changed; saying it was now up to Parliament.
 
An unnamed ministry official told Business Standard that the inter-ministerial group headed by revenue secretary Gujral is likely to meet in a day or two to reply to Vodafone's notice for arbitration under the bilateral investment promotion agreement (BIPA) with the Netherlands.
 
"The government may tell Vodafone that tax issues are not covered under the BIPA," the official added.
 
Incidentally Vodafone, although an 'established' player whose telecom operating licences are not under threat, has supported companies like Norway's Telenor and Russia's Sistema in opposing the recently publicised proposals of the Telecom Regulatory Authority of India for the resale of 122 telecom licences annulled by the Supreme Court this year.