Vodafone Facing Total Tax Liability of Rs. 27,000 Crore in India

UK-based telecom major Vodafone is facing tax claims and interest totalling more than Rs. 27,000 crores in India, which includes Rs. 14,200 crores for acquiring Hutchison's stake in 2007, the company said in its annual report.

Vodafone said that its Indian subsidiary had received a letter in January last year from the authorities reminding it of the tax demand of Rs. 14,200 crores in relation to the dispute over acquisition of Hutchinson in 2007.

The report said, "Vodafone International Holdings BV (VIHBV) has not received any formal demand for taxation following the Finance Act 2012 but it did receive a letter on January 3, 2013 reminding it of the tax demand raised prior to the Indian Supreme Court's judgement and purporting to update the interest element of that demand in a total amount of Rs. 142 billion."

Besides, the UK telecom company is also facing tax liability of over GBP 1 billion. These claims are related to transfer pricing, disallowance of income tax holidays and applicability of value-added tax to SIM cards.

According to the report, "Vodafone India (VIL) and Vodafone India Services Private Limited (VISPL) are involved in a number of tax cases with total claims exceeding 1 billion pound plus interest, and penalties of up to 300 per cent of the principal."

At current exchange rates, one billion pounds is worth Rs. 9,900 crores.

The claims against VIL range from disputes concerning transfer pricing and the applicability of value-added tax to SIM cards, to the disallowance of income tax holidays. The quantum of the tax claims against VIL is in the region of GBP 900 million.

VISPL has been assessed to owe tax of approximately GBP 240 million plus interest of GBP 190 million (about Rs. 4,250 crores) in respect of a transfer pricing margin charged for the international call centre of Hutchison prior to the transaction with Vodafone, sale of the international call centre by VISPL to Hutchison and alleged transfer of options held by VISPL for VIL equity shares.

As regards the liability of Rs. 14,200 crores towards acquisition of Hutchison Whampoa in 2007, the company faces tax demand following the retrospective tax amendment carried out by the UPA government in 2012.

The Supreme Court, it may be mentioned, had ruled in favour of Vodafone but the Indian government changed the law with retrospective effect overturning the apex court's ruling.

The UK company in April this year slapped arbitration notice under the Bilateral Investment Treaty for resolution of the tax dispute.

(Also see: Vodafone Challenges Modi's Pro-Business Talk to Resolve Tax Dispute)

Apart from the tax cases, Vodafone's local outfit is also facing a number of regulatory cases, the report said.

"Litigation remains pending in the Telecommunications Dispute Settlement Appellate Tribunal, High Courts and the Supreme Court in relation to a number of significant regulatory issues including mobile termination rates, spectrum and licence fees, licence extension and 3G intra-circle roaming," Vodafone said.

Vodafone said the Government of India has sought to impose one-time spectrum charges of approximately GBP 525 million on certain operating subsidiaries of VIL.

In other news, Union Communications and Information Technology Minister Ravi Shankar Prasad has sought details about admission by Vodafone that India was among 29 countries that sought access to its network to intercept calls, text messages and emails last year.

"I got to know about the issue while on my way to Patna today [Saturday]. I have asked the officials of my department to gather details about it," Prasad told reporters in Patna.

He declined to make any announcement saying that Parliament was in session and as a minister he had his limitations.

The company, in its Law Enforcement Disclosure report, did not mention the number of requests made by India as Indian laws did not allow disclosure of information on interception and communications data.

Vodafone did not say if it complied with the requests made by the Indian government.

Speaking about BSNL, the minister said that he would look into the scope for its spread and development in Bihar.