Centre likely to reject Vodafone’s MAP plea

Vodafone Plc, the world’s biggest mobile phone operator, is likely to face another setback in its effort to ward off a $2 billion tax bill in India.

According to two sources familiar with the development, the finance ministry is all set to reject a request by the Netherlands government to invoke a Mutual Agreement Procedure (MAP) in the Vodafone tax saga.

A fortnight ago, the Dutch authorities had written to the government stating the obligation of Vodafone, as sought to be imposed by the Indian tax department, was inconsistent with the provisions of the India-Netherlands tax treaty.

MAP entitles the competent authority of a country to take up tax disputes (on behalf of its taxpayer), with the revenue authorities of the country where the taxpayer is facing tax litigation.

Sources in the finance ministry said the MAP application filed by the Dutch authorities cannot be entertained since the primary tax liability is that of Hutchison and not Vodafone.

“Vodafone is the payer who should have deducted tax at source before making the $11 billion payment to Hutchison. They can’t now step into Hutchison’s shoes and argue the matter,” said a government source familiar with the MAP application.

This person argued that the Rs11,300 crore tax controversy is squarely covered by the Indian Income Tax Act and there is no applicability of the India-Netherlands tax treaty.

“The matter is sub judice and the Supreme Court will hear Vodafone ‘s petition next year. How can we then entertain their MAP application now?,” another government official associated with this case told DNA.

The Income tax department is seeking to recover over Rs11,300 crores in capital gains taxes from Vodafone for failing to deduct tax before making payment of $11 billion to Hutchison, for acquiring a 67% stake in Indian telecom company Hutchison Essar.