Vodafone off the hook in Rs 3,200 crore transfer pricing case
In a major relief to Vodafone India Services Pvt Ltd (VISPL), the governmenton Wednesday decided not to appeal against last year’s Bombay High Courtjudgment that offered it relief from paying tax of Rs 3,200 crore in a transfer pricing case.
The decision was taken by the Union Cabinet, chaired by Prime MinisterNarendra Modi, based on the counsel from chief commissioner of I-T (international taxation), chairperson (Central Board of Direct Tax) and theAttorney General of India (AGI).
“This is a major correction of a tax matter which has adversely affected investor sentiment,” said the statement issued by the government.
With this long pending issue sorted out, the government believes there will be greater clarity and predictability for taxpayers as well as tax authorities, which will result in better tax compliance and reduce litigation on similar issues.
“This will also set at rest the uncertainty prevailing in the minds of foreign investors and taxpayers in respect of possible transfer pricing adjustments in India on transactions related to issuance of shares, and thereby improve the investment climate in the country,” said the release.
Vodafone group applauded the decision saying “stability and predictability in tax matters” boded well for investors.
“We welcome the government’s decision not to appeal the Bombay High Court ruling. Stability and predictability in tax matters are important for long term investors such as Vodafone,” said the statement released by the UK-based telecom firm.
I-T department and Vodafone’s Indian subsidiary have been entangled in a tax dispute since 2010 when the Indian tax authorities demanded the telecom major to pay additional income tax alleging that it had undervalued its shares while transferring them to the parent company in the UK.
The tax authority had issued a show cause notice to Vodafone India on January 17, 2014, and later passed an order asking it to pay additional Rs 3,200 crore tax for allegedly undervaluing the shares of its Pune BPO.
On January 27, Vodafone moved the High Court challenging the I-T order and contended that its transaction on transfer of shares was not taxable under the Indian tax laws.
The Bombay High Court in its ruling had said that “the tax can be charged only on income and in the absence of any income arising, the issue of applying the measure of Arm’s Length Pricing to transactional value/consideration itself does not arise.”
The Cabinet’s view on the issue was that as it was a transaction on the capital account and there was no income to be chargeable to tax. “So applying any pricing formula is irrelevant,” said the government statement.
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