India tells Vodafone, Cairn to take tax offer or pay double

New Delhi / Bloomberg

Vodafone Group Plc and Cairn Energy Plc must decide whether to take the tax olive branch proposed by India or risk having to pay 500 billion rupees ($7.4 billion) that the government claims in taxes, penalties and interest, an official said.
The government has done its best to end disputes with Vodafone and Cairn over retrospective taxes, Revenue Secretary Hasmukh Adhia said in an interview in New Delhi. On Monday, Finance Minister Arun Jaitley proposed a one-time offer under which the government would settle the cases and drop its demand for interest and penalties if the companies agreed to pay the tax arrears.
“The government has defined its limit,” Adhia said. “This is how far we can go. Otherwise the demand stands, the interest stays, the penalty stays and there is no stay order as of now.”
While the tax demanded from both companies amounts to 200 billion rupees, penalties and interest amount to another 300 billion rupees, Adhia said.
In March last year, Indian authorities asked Cairn Energy to pay $1.6 billion in taxes for selling a stake in Cairn India Ltd. Separately, Cairn India was asked to pay more than $3 billion, including interest, for failure to deduct tax on gains made by its former
parent.
Vodafone is seeking to
resolve a tax dispute exceeding $2 billion. The phone company’s dispute relates to its $11 billion 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.
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 Monday. Vodafone rose 1.3 percent on March 1 in London, while Cairn Energy gained 2.4 percent.
“If we settle retrospective taxation that means significant revenue can be brought in,” Junior Finance Minister Jayant Sinha said in an interview Feb. 29. “There are 300,000 appeals pending for 5.5 trillion rupees.”