Mumbai: India is unlikely to launch an appeal against the recent-Rs30 billion ($490 million) tax victory won by British telecoms group Vodafone, in a sign that Prime Minister Narendra Modi is shedding his government’s image for aggressively targeting the taxation affairs of foreign businesses.
India’s attorney general has recommended against an appeal to the country’s supreme court, following Vodafone’s victory in a ruling from the Bombay High Court last month, three people familiar with the situation confirmed.
If India’s cabinet agrees with the recommendation, it will signal a further softening of the country’s traditional policy of doggedly pursuing similar tax cases, which Modi’s centre-right Bharatiya Janata Party once criticised as “tax terrorism”.
It would also provide a welcome signal to Anglo-Dutch oil group Shell, which won a similar victory in a $3bn ruling-earlier this month, that the government was unlikely to launch a supreme court-appeal in its own case..
Numerous other global businesses including US-based technology group IBM and British energy explorer Cairn, have found themselves caught in a range of typically lengthy and complex tax rows with New Delhi.
Vodafone won its appeal in October in a case relating to “transfer pricing” — the way that global organisations account for services provided by local subsidiaries to divisions in other countries. The area has been the cause of numerous disputes in India.
India’s previous government had typically launched appeals in similar cases, a policy supported by revenue officials. But Mukul Rohatgi, India’s attorney general, said he had recommended against an appeal in Vodafone’s case.
“I have asked the income department to accept the judgement of the high court. I have said in my opinion don’t file an appeal,” Rohatgi said, according to Press Trust of India, a local wire news service.
Although the change of heart may now face resistance from India’s revenue service, the signal was welcomed by tax analysts, who said it showed that Modi had understood that frequent tax battles had damaged India’s reputation as an investment destination.
“This is very good news, given the ordinary tendency is to appeal high court decisions,” said Mukesh Butani, the tax practice leader at B Advisors, an India-based professional services group.
“The new leadership clearly wants to create a non-adversarial tax environment, and so I would expect Shell and others to benefit from similar treatment, given the principles in their cases are identical to Vodafone.”
Vodafone’s victory last month has no bearing on another long-running $2.6bn case relating to its 2007 acquisition of an Indian telecom group, perhaps the most celebrated corporate taxation battle in recent Indian history. The case is awaiting international arbitration.
Modi disappointed investors earlier this year by refusing to repeal a 2012 tax law-change that allowed his government to reopen old tax disputes retrospectively, a measure that could have ended Vodafone’s dispute.
— Financial Times
