* Retrospective change could lead to reopening of Vodafone
* Finance secy: "no question" of raising fresh tax demand on
* Vodafone: examining proposed rule change, believes no
By Devidutta Tripathy and Manoj Kumar
NEW DELHI, March 16 India on Friday
proposed retroactive changes in its tax rules, prompting
speculation that Vodafone's $2.2 billion tax case could
be reopened, although a senior government official denied the
government was looking to raise any fresh demand on the British
mobile phone giant.
Still, tax professionals said the potential law change is
likely to come in for challenge.
"They have amended the law because the Supreme Court found
the law deficient on some grounds," said Neeru Ahuja, a partner
at Deloitte Haskins & Sells, referring to the Vodafone case.
"Now of course the issue is: can the government legitimately
do this," she said.
Vodafone in January won a five-year legal battle against
India's tax office in a Supreme Court ruling, which said
authorities did not have jurisdiction to tax the company's 2007
acquisition of Indian mobile phone assets.
India's tax office has sought a review of the Supreme Court
verdict. The review petition is yet to be heard by the court.
In its annual budget presented in parliament on Friday, the
finance ministry proposed changes in several tax rules on a
retroactive basis to 1962, which some experts took as a clear
indication that the government was looking to tax the Vodafone
deal and other mergers.
"The way they have proposed this law, everything they can
look at again. They have completely changed the law with
retrospective amendment from 1962," said Ahuja.
Finance Secretary R.S. Gujral later told reporters that
there was "no question" of raising any fresh tax demand on
Vodafone, but referred to the review petition filed by the tax
office in the Supreme Court.
Separately, Vodafone said in a statement it was examining
the proposed rule change with its lawyers, but believed there
would be no impact.
"We do not believe this retrospective change in tax law
should have any impact on the final judgment handed down by the
Supreme Court in our tax case. We continue to have faith in the
Indian judicial system," the company said.
In the Vodafone case, India's tax office had argued the
company's deal to buy the local mobile phone operations of
Hutchison Whampoa was liable for tax because most of
the assets were in India.
Vodafone, the world's largest mobile operator by revenue,
had argued that Indian tax authorities had no right to tax the
transaction between two foreign entities. India's Supreme Court
ruled that under existing rules, Vodafone was not liable to pay
tax on the deal.
The proposed amendment in tax rules may also be also
significant for other multi-national companies including Kraft
Foods, SABMiller and AT&T Inc, which also
face potential tax demands in India over cross-border deals.
Another Indian finance ministry official, who declined to be
identified, said the government intended to tax such
cross-border deals and estimated total tax dues of 350-400
billion rupees ($7-$8 billion) under the proposed law change.
Dinesh Kanabar, deputy CEO and chairman of tax at KPMG
called the proposed retrospective amendment in tax rules a "big
"If an assessee gets an answer after years of litigation
only to find the law amended retrospectively, why litigate?," he