India Proposes Settlement for Vodafone, Cairn in Tax Dispute

  • Finance Minister Jaitley offers to withdraw penalty, interest
  • Jaitley offers to settle dispute if litigation is withdrawn

India will make a one-time offer to Vodafone Group Plc and Cairn Energy Plc to settle long-running disputes with the country’s tax authorities.

“I propose a one-time scheme of dispute resolution for them,” Finance Minister Arun Jaitley said in Parliament on Monday. “They can settle the case by paying only the tax arrears, in which case liability of the interest and penalty shall be waived.” He said the companies would have to withdraw litigation as well.

Economic Affairs Secretary Shaktikanta Das subsequently said the comments were directed toward Vodafone and Cairn, even though Jaitley didn’t identify them by name.

Cairn India has been asked to pay more than $3 billion in taxes because of transactions involving its former parent.

Vodafone, which is seeking to resolve a tax dispute exceeding $2 billion, spent $11 billion on an acquisition of a 67 percent stake in the mobile-phone business owned by Hutchison Whampoa, now part of CK Hutchison Holdings Ltd., in 2007. While Vodafone has said it doesn’t owe the Indian government money because the transaction was conducted offshore, Indian authorities have sought to collect taxes on the deal because it involved assets in the country.

“It is an excellent move,” New Delhi-based Managing Partner at BMR legal. “It shows the government is finally trying to bury those issues and giving companies in disputes an opportunity to come out and settle it. Now whether the deal is sweet enough or not, is a relative question that specific companies will have to take a call on.”

Vodafone will study the minister’s proposal while continuing to seek a resolution through international arbitration, according to an e-mailed statement from the company.

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