A top Indian government official says India will pursue Vodafone for some $3.72 billion in back taxes, interest and penalties as soon as parliament completes passage of tax law changes.
Vodafone's bill "all adds up to around 200 billion rupees ($3.72 billion), Finance Secretary R.S. Gujral told a news channel late Wednesday.
The sum includes the original tax demand, along with a similar fine amount and interest charges and is a major blow for the company which considered the matter resolved in January after a Supreme Court ruling in its favour. Gujral's statement came after the lower house of parliament passed legislation that could oblige overseas firms to pay tax on transactions involving Indian assets all the way back to 1962.
The measure, however, is seen as mainly aimed at overriding the Supreme Court ruling dismissing what was then a $2.20-billion tax claim on Vodafone stemming from its 2007 takeover of Hong Kong-based Hutchison Whampoa's Indian cellular unit.
"The taxman's orders on the demand, interest and penalty will get validated once the finance bill becomes an act," Gujral said, adding there "is no question of the government negotiating on any issue like this."
"It is government's job to take action to collect dues."
The legislation, which has provoked huge criticism from foreign investors for its retroactive nature as well as questions about India's respect for the rule of law, is to be signed into law by late May. There was no immediate reaction from Vodafone to Gujral's statements but earlier it slammed the government for passage of the legislation. "The Indian Supreme Court unambiguously ruled that no tax was payable in India according to the laws of India in force in 2007," Vodafone said in a statement. "It would be grossly unjust if, on the basis of legislation passed five years after the event, Vodafone were to be charged on a gain made by someone else (Hutchison)."
The 2007 deal was struck between Vodafone's Dutch subsidiary and a company based in the Cayman Islands that held Hutchison Whampoa's India assets.
India contends Vodafone should have withheld the amount the seller -- Hutchison -- would have owed in capital gains tax when it sold the Indian unit for $10.7 billion. Vodafone successfully argued in court the deal was exempt from tax because the sale took place abroad and both buyer and seller were from beyond India's borders.The company added it was "naturally disappointed that despite very widespread concern in India and internationally" the measure was passed.
The row comes at a time when India urgently needs big-ticket foreign investments to upgrade its shabby infrastructure and spur slowing growth.
Investors have already been dismayed by economic policy paralysis and a slew of graft scandals besetting the Congress-led government.
Vodafone, which has threatened to take India to international arbitration, said it would use all means to safeguard shareholders' interests.
Defending the bill, Finance Minister Pranab Mukherjee said Tuesday "India cannot become a no-tax country... a tax haven" to lure foreign investors.
Mukherjee did not name Vodafone but said "either you pay tax here or in your own country."
Vodafone, which operates India's third-largest mobile firm by subscribers, stressed despite the legal battle, it remains "a very committed investor in India" -- the world's second-largest cellular market after China.