Vodafone India’s tax problems have once again worsened after a tribunal arbitrating a dispute ruled last week that the tax authorities have the power to demand the operator pay tax in a transfer-pricing case.
The case involves the sale of a call-centre business back in 2007, from which the country’s tax authority said Vodafone owes INR85 billion ($1.36 billion) in tax.
In the long-running dispute, the Supreme Count ruled in Vodafone’s favour two years ago, noting the tax authorities had “no jurisdiction” to levy tax on overseas transactions between companies incorporated outside India. But the government then moved to change its income tax act.
The Income Tax Appellate Tribunal’s latest ruling said the sale was structured with the intent to “circumvent the transfer pricing provisions of the Income Tax Act” and was essentially an “international transaction between two related parties and thus would be subject to the transfer pricing provisions”, the Economic Times reported.
The tribunal, however, sent the case back to the Income Tax Department to review the amount subject to tax.
In October, the company’s tax problem took a turn for the better when it won a favourable ruling from the Bombay High Court in an INR30 billion ($490 million) tax dispute with the Indian government over transfer pricing.
The operator had appealed the country’s tax office decision to demand the tax after it accused Vodafone India Services of undervaluing its shares in a rights issue to its parent. The company has insisted all along that the transaction was not taxable.
The ruling is yet another setback for foreign investors who have long complained about India’s regulations and tax laws, which seem to change with each shift in government.