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Vodafone, finance ministry agree on tax settlement talks
November, 26th 2013

After months of debate, the finance ministry and the British telecom giant Vodafone have agreed to sit across the table for talks on a possible settlement of the Rs 20,000 crore tax dispute after the government formally communicated that any conciliation will not be legally binding on the telecom company.

The government's reconciliation gestures with the telecom company had failed after the Centre insisted that talks have to be under Indian laws. Vodafone, however, was seeking to settle the dispute under UN arbitration laws. Vodafone CEO Vittorio Colao will be visiting India and is scheduled to meet finance ministry officials in the first week of December, sources said. Colao is also scheduled to meet finance minister P Chidambaram.

The government has made tax claims of over Rs 20,000 crore from Vodafone on account of tax, interest and penalty on gains made by Hutchinson when it sold its India assets to the company in 2007. Only the tax liability of the company was pegged at Rs 11,200 crore. Although the Supreme Court had trashed the tax claims, the government amended the law retrospectively to make a fresh demand, resulting in an uproar in the investor community. Subsequently, the Union cabinet cleared the proposal to enter into conciliatory talks.

On the one hand, the government tried to initiate conciliation talks with Vodafone, on the other it referred the matter to the Law Commission for suggestions to amend the Arbitration and Reconciliation Act where cases like Vodafone, which is arising out of retrospective amendment in Income Tax (I-T ) Act, can be settled while avoiding international arbitration.

The Law Commission's recommendation is still pending but sources indicated that the commission is of the view that any amendment in the Arbitration Act may not help the government to settle the case out of court. Instead, sources in the Law Commission suggested that the settlement with Vodafone is possible either through the I-T's settlement commission or an amendment needs to be brought under the I-T Act providing for reconciliation and settlement of tax dispute other than through the settlement commission.

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