January 29, 2013 7:34 pm

India sees end to Vodafone tax dispute

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India’s finance minister is confident that a $2.6bn tax dispute with Vodafone is close to being settled as the Indian government attempts to win back international investor confidence.

In an interview with the Financial Times, Palaniappan Chidambaram said the Indian authorities would be holding a third round of talks with the British telecoms group this week in an attempt to resolve the stand-off.

Any resolution of the dispute will be studied by global investors for what it says about India’s changeable approach to taxation rules.

Vodafone has formally written to the government offering to engage senior government officials to find a way out of the problem,” Mr Chidambaram said. “I’m confident we will resolve [the Vodafone] issue.”

Asked whether the dispute could be settled within a month, he said: “I am trying to resolve it even sooner than that.”

Vodafone declined to comment on the interview. One figure close to the company said Mr Chidambaram was playing up the possibility of a deal, but another said the atmosphere in talks between Vodafone and the Indian government had clearly changed in recent weeks.

The dispute dates from Vodafone’s $10.9bn acquisition of Hutchison Essar in 2007, after which India began pursuing the British group for capital gains made under the previous owners.

The UK telecoms company appeared to emerge victorious in the case last year following an arduous legal battle, when a landmark Supreme Court ruling in January backed the company’s claim that no tax was due.

However, India’s government in May reopened the disagreement by amending legislation to allow retrospective tax claims relating to historic deals struck by international businesses with Indian subsidiaries, including Vodafone.

Legal analysts suggest that a potential deal could involve India’s authorities waiving the interest and penalty portion of the tax charge, and accepting a reduced amount for the main payment.

Vodafone has said it believes no tax is payable but it is also hoping to progress with an initial public offering of part of its Indian business, which has been on hold pending a resolution of the tax case.

Any potential Vodafone deal could also have implications for a number of other Indian court cases relating to cross-border deals involving global companies with Indian subsidiaries, such as SABMiller and General Electric.

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