India’s tax office has sent Vodafone Group a reminder to pay $2 billion in taxes and threatened the British telecoms group with seizure of local assets if it fails to do so, despite the long-running dispute being the subject of an international arbitration process.
Prime Minister Narendra Modi’s government has sought to move towards a tax-friendly regime to boost foreign investment and reduce the number of outstanding tax disputes with multinational firms.
Vodafone, one of India’s largest corporate investors, has repeatedly clashed with the authorities over taxes since it bought in 2007 CK Hutchison’s local mobile business, Hutchison Essar. Initially Vodafone was held liable for paying capital gains tax on the deal, even though it was the buyer.
In 2012 India’s Supreme Court ruled that Vodafone was not liable for payment of any tax on the acquisition but the government then changed the law later that year to enable it to tax such deals retrospectively, demanding more than $2bn be paid on the Hutchison deal.
In 2014 Vodafone then sought international arbitration of the dispute, which has still not been settled.
“We can confirm that we have received a tax reminder from the tax department that also references asset seizures in the event of non-payment,” a London-based spokesman for Vodafone said in a statement.
“In a week when Prime Minister Modi is promoting a tax-friendly environment for foreign investors this seems a complete disconnect between government and the tax department,” the Vodafone statement said.
A number of other multinational companies including Royal Dutch Shell Plc, IBM Corp, Microsoft Corp and Hewlett-Packard Co have fallen foul of India’s tax collectors in recent years. In most of the cases the tax department has charged the firms with under-invoicing the value of products, services or shares sold to their parents and, therefore, lowering tax liabilities.