Senior government official confirms plan to levy tex bill, plus penalty and interest, on U.K. mobile operator.
India plans to demand about $3.75 billion in taxes from Vodafone Group PLC if parliament approves a law to retroactively tax overseas mergers which have an underlying Indian asset, a senior official said Wednesday.
The demand will include basic tax of about $1.48 billion, a penalty of a similar amount and interest charges of about $790 million, R.S. Gujral, secretary at the Department of Revenue in the Ministry of Finance, said on television.
The amount mentioned by Gujral has been talked about for a while now, but this is the first time a senior government official has gone on record to confirm.
The amount is nearly double the $2 billion tax that the government is believed to have demanded earlier.
The case involves Vodafone’s $11.2 billion purchase of a majority stake in Hutchison Whampoa Ltd.’s Indian assets in 2007. The British company acted through a Dutch subsidiary while Hutchison Whampoa did the deal using a Cayman Islands unit.
Vodafone says it isn’t liable to pay any tax as the deal was conducted overseas, but the government says this argument is flawed as it involves the transfer of assets based in India. The Supreme Court in January agreed with Vodafone’s case.
In a statement Wednesday, the British company said:”It would be grossly unjust if, on the basis of legislation passed five years after the event, Vodafone were to be charged tax on a gain made by someone else.”
Vodafone has invested over $9.30 billion in its Indian operations and paid more than $5.39 billion in taxes without repatriating any profits, it added.
The tax law change, introduced as part of the Finance Bill in March, is seen by industry experts as sidestepping the Supreme Court ruling.
The bill, which was passed by the lower house of parliament Tuesday, is now awaiting approval by the upper house.
If it is passed and gets presidential approval, it will allow India to tax transactions dating back to 1962.
“Once the Finance Bill is passed, the interest amount [in the Vodafone case] will be updated and then taken forward,” Revenue Secretary Gujral said.
Vodafone said it is studying the amended legislation and will take all possible steps to safeguard its shareholders’ interest. The company has previously said it could seek to protect its rights under a bilateral investment treaty between the Netherlands and India.