New rules soon to settle retrospective tax row with Vodafone

The government of India will issue a new set of guidelines to aid the resolution of its retrospective tax dispute with Vodafone, The Economic Times has reported, quoting a government official.

Vodafone, unlike the others, had to validate a tax claim under Section 119 of the Finance Act 2012, and as a result, rules had to be created under a separate section to withdraw the tax demand, the report revealed.

“Rules will be communicated soon,” the news report quoted the official as saying. The basic pattern of the rules would be similar to the final set of settlement norms imposing indemnity from willing companies.

Retrospective tax

Vodafone will have 45 days to seek a settlement after being notified of the new guidelines.

Tax claims were issued in other retrospective cases, notably Cairn, after the 2012 change to Section 9 pertaining to the indirect transfer of Indian assets.

The Vodafone issue, on the other hand, had been ongoing for some time, and following the contentious 2012 change, the demand was validated under Section 119.

Vodafone will also be required to submit a declaration to the I-T department pledging to indemnify the government and its affiliates against any further claims and to commit to not seeking any damages while withdrawing any legal cases in various forums under this set of guidelines.

New guidelines

On October 2, the CBDT had announced final guidelines for the settlement of retro cases, putting into effect the Taxation Laws Amendment Act, which was passed during the monsoon session of Parliament.

The central government had appealed a September 2020 decision by the Permanent Court of Arbitration in The Hague in favour of Vodafone, which determined that the company was entitled to treaty investment protection and demanded India to stop violating the treaty.