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Finance Ministry moves Cabinet for withdrawing from peace talks
May, 13th 2014

The Finance Ministry today said it has moved the Cabinet for withdrawing from conciliation proceedings to resolve the tax row with Vodafone after the UK-based telecom firm served notice of arbitration.

Vodafone in a letter to the Revenue Department dated March 13 had stated they saw no merit in reviewing the matter of conciliation in the Rs 20,000-crore capital gains tax dispute case after receipt of the decision of the ITAT.

It had further said that the only body capable of resolving the issue would be an arbitration panel constituted according to the Bilateral Investment Promotion and Protection Agreement (BIPA).

Listing out the sequence of events, the Finance Ministry in a statement said it was then decided to approach the Cabinet again, bringing these facts to it notice and seeking approval for withdrawing from conciliation.

"Meanwhile, without waiting for the outcome of the ITAT proceedings, Vodafone International Holdings B.V.(VIHBV) has served a 'Notice of Arbitration' dated April 17 seeking arbitration under the BIPA between India and the Netherlands," the official statement said.

Earlier in February, the Cabinet had deferred considering the proposal to withdraw from conciliation talks with the UK-based firm, pending settlement of Rs 3,700 crore Vodafone's transfer-pricing case at the Income Tax Appellate Tribunal (ITAT).

Last year in June, the Cabinet had approved conciliation with Vodafone to resolve the capital gains tax dispute related to its 2007 acquisition of Hutchison Whampoa's stake in Hutchison Essar.

While the basic tax demand is Rs 7,990 crore, the total outstanding is Rs 20,000 crore after including penalty.

The Supreme Court had ruled in Vodafone's favour in 2012, saying it was not liable to pay any tax over the acquisition of assets in India from Hong Kong-based Hutchison.

The government changed the rules later in 2012 to enable it to claim tax retrospectively on concluded deals.

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