Vodafone watchout! Your tax notice is coming in 14 days

While the finance and the law ministries are in talks to draft a circular on taxing overseas transactions involving the transfer of Indian assets with retrospective effect,a decision on the tax notice to Vodafone on its acquisition of Indian assets in the Hutchisson-Essaris likely to be taken up in two weeks, said a B_usiness Standard_ report.

“The Income Tax Department had issued a Rs 11,000-crore tax notice, including interest, on Vodafone, saying it should have deducted tax at source from Hutchison. However, the Supreme Court had turned down the department’s plea that it had jurisdiciton to tax Vodafone,” said the BS report.

It seems the government is determined to put the British telecom giant on the tax hook for its overseas deal with Hutchison Whampoa to acquire the latter’s Indian assets in 2007, even after the Supreme Court declared it was not liable to pay tax of up to $2.2 billion in the deal. The tax amendment, once passed into law, will overrule that verdict

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[caption id=“attachment_343012” align=“alignleft” width=“380” caption=“It seems the government is determined to put the British telecom giant on the tax hook for its overseas deal with Hutchison Whampoa. AFP”]  [/caption]

The Finance Bill, which was passed in Parliament contains retrospective amendments to the Income Tax Act, 1962, that enables deals like Vodafone’s to be taxed for Indian assets. Investors have been on edge ever since Mukherjee decided to introduce the General Anti Avoidance Rules, and the retrospective tax proposal. Various media reports have said the government is likely to demand up to Rs 40,000 crore in taxes in up to 20 such cases, more than half of which will come from Vodafone alone.

The amendment, which has set the stage for a fresh demand on Vodafone, has been criticised by domestic and international companies although the government has held firm.

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The income-tax department is currently awaiting a circular form the finance ministry that would specify the rules for retrospective amendments. After the top officials in the government give their approval, the department will revive its demand for the ‘Vodafone tax’ after studying the possible implications of the notice by the company under the Bilateral Investment Promotion Agreement.