Get an Ar­bi­tra­tor, Set­tle the Tax Dis­pute

The Economic Times - - Breaking Ideas -

The Voda­fone tax case has been hang­ing fire for far too long. This long de­lay is not in In­dia’s in­ter­est as it seeks to at­tract greater in­vest­ment into the country. Both the govern­ment and the com­pany are open to find­ing a mu­tu­ally ac­cept­able res­o­lu­tion through ar­bi­tra­tion. How­ever, choos­ing ar­bi­tra­tors ac­cept­able to both par­ties seems to present dif­fi­cul­ties, hence the de­ci­sion by Voda­fone to move the Hague-based In­ter­na­tional Court of Jus­tice to ap­point a judge who will pre­side over the ar­bi­tra­tion. It is time that this case was set­tled.

The govern­ment is clear that, of the cap­i­tal gain that ac­crued to Hutchi­son Wham­poa, when it sold its 67% eco­nomic in­ter­est in the hold­ing com­pany that owned Hutch-Es­sar to Voda­fone for $11 bil­lion, a share be­longed to the govern­ment that had al­lowed value to be cre­ated both in gen­eral and specif­i­cally by not charg­ing up­front pay­ment for spec­trum so that tele­com would spread fast in the country. But to make this claim, the govern­ment had to re­sort to a ret­ro­spectve clar­i­fi­ca­tion the tax law al­ways sought to in­clude in­di­rect trans­fers via a change of own­er­ship of a hold­ing com­pany reg­is­tered abroad, in its pro­vi­sion on cap­i­tal gains. This had led to much con­tro­versy, which helps no one. The govern­ment has also made it clear that is in­ter­ested in bring­ing this vexed case to a close: the Bud­get of­fers a one-time scheme of Dis­pute Res­o­lu­tion, by which the case can be set­tled by pay­ing only the orig­i­nal tax de­mand, lop­ping off in­ter­est and penalty.

Voda­fone might need an ar­bi­tra­tion or­der to jus­tify to its share­hold­ers pay­ment of tax in a com­pro­mise set­tle­ment. An ar­bi­tra­tion award would shield the govern­ment also from charges of caus­ing loss to the ex­che­quer by waiv­ing penalty and in­ter­est on the orig­i­nal tax de­mand.

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