Vodafone blames India for collapse of $2 bln tax dispute talks

MUMBAI Wed Feb 19, 2014 11:30am EST

MUMBAI Feb 19 (Reuters) - Vodafone Group blamed the Indian government on Wednesday for the collapse of talks aimed at settling a $2 billion tax dispute relating to its acquisition of Hutchison Whampoa's mobile business in the country.

India's finance ministry is preparing to seek the federal cabinet's approval to withdraw conciliation proceedings after Vodafone wanted a separate tax dispute to be made part of the talks.

"Vodafone entered into discussions with the Indian government in good faith and with a desire, as one of India's largest international investors, to achieve a fair outcome acceptable to both parties," Vodafone said following media reports on the government's move to scrap the talks.

"Throughout, Vodafone has responded to the government's queries in a timely manner, notwithstanding, at one point, a six-month delay by the Indian government in responding to correspondence sent by Vodafone," it said in statement.

Uncertainties over policy in India have unsettled investors, with tax claims on foreign companies a major concern. IBM , Royal Dutch Shell Plc and Nokia are among foreign firms contesting local tax claims.

Vodafone, the world's second-biggest mobile operator by subscribers, entered India in 2007 via the Hutchison Whampoa deal. It is contesting a tax bill of about 112 billion rupees ($1.8 billion) relating to the acquisition.

The Indian Supreme Court ruled in 2012 that Vodafone was not liable to pay any tax over the transaction. But the government changed the rules, allowing it to make retroactive tax claims on completed deals and drawing criticism from business groups.

The Indian cabinet gave the go-ahead for conciliation talks with Vodafone last June. While formal talks are yet to begin, Vodafone and Indian government representatives had a series of meetings last year.

Vodafone had insisted that the conciliation talks include a transfer pricing dispute involving a unit offering call-centre services to group companies.

The Indian government disagreed leading to its move to scrap the talks.

A finance ministry spokesman did not have any immediate comment on Vodafone's response.

Vodafone said in its statement it had made clear any resolution to the tax dispute would need to include all aspects of its acquisition of Hutchison assets and that New Delhi was seeking to tax one event twice by claiming tax on transfer pricing.