By Saurabh Chaturvedi And R. Jai Krishna
NEW DELHI--In a move to show it wants to welcome more foreign
investment, India said Wednesday it will not appeal a court order
that ruled in favor of Vodafone Group PLC in one of its
long-running, multimillion-dollar tax disputes.
Vodafone and Indian tax authorities have been locked in two huge
tax cases for years. A court in Mumbai ruled in favor of Vodafone
in one of its cases late last year. The fact that India has decided
not to try to appeal the decision to the Supreme Court is a signal
Asia's third-largest economy is trying to create a more predictable
tax regime to attract foreign investment.
"The [cabinet's] decision gives a message to investors," said
India's telecom minister, Ravi Shankar Prasad, after a meeting of
the cabinet on Wednesday. "The government--led by Narendra Modi,
the Prime Minister--wants to convey a clear message to investors
world over that this is a government where decisions will be fair,
transparent and within the four corners of the law."
In the case that was rejected, tax authorities claimed that
Vodafone priced the shares of its stakes in its Indian companies
sold to other arms of Vodafone in a way to avoid taxes. Authorities
had been seeking more than $500 million in taxes. Vodafone is still
fighting another case in which tax authorities say it owes more
than $2 billion in taxes left over from its acquisition of a phone
company in India.
Vodafone has maintained throughout the legal proceedings that it
doesn't owe taxes in either of the cases. Its high-profile battle
with India's taxman has been regularly cited as an example of
foreign firms being harassed in India and as a reason that India
doesn't attract more investment.
Royal Dutch Shell won a similar transfer-pricing case late last
year, in which the court rejected tax officials' claims that Shell
mischaracterized a 2009 share transfer from its Indian unit to the
parent to avoid taxes on more than $2.5 billion that India says
should be considered income. Shell said it valued the deal
properly. The government hasn't said whether it will appeal that
decision or not.
Executives at Vodafone in London and Shell couldn't immediately
be reached for comment Wednesday.
International executives have complained for years that Indian
tax authorities had become unpredictable and heavy handed in their
enforcement of tax law, particularly on the foreign companies that
have invested most in the country.
Among the other international companies that have made big bets
on India and then ended up fighting with tax authorities over
surprise tax bills in the country are HSBC Holdings PLC, General
Electric Co. and AT&T Inc.
Conflicting and confusing tax laws and volatile enforcement of
them is one of the biggest reasons India underperforms many
countries in rankings related to ease of doing business. In the
World Bank's ease of doing business ranking, India came in as
number 142 out of 189 last year.
Prime Minister Modi won national elections last May after a
campaign promising to make it easier to do business in India to
invigorate growth. His party leaders vowed to end what they dubbed
"tax terrorism."
Soon after taking office the prime minister has launched his
"Make in India" campaign aimed at attracting the investment the
country needs to create more and better jobs for its population of
more than 1.2 billion people.
"Investors' confidence has been shaken in the past because of
fluctuating tax policies where investors' view and government view
were completely at loggerheads," Mr. Prasad said. "We have tried to
give a positive message to investors world over and the investors
in India."
R. Jai Krishna contributed to this article.
Write to Saurabh Chaturvedi at Saurabh.Chaturvedi@wsj.com and
Eric Bellman at eric.bellman@wsj.com
Access Investor Kit for Royal Dutch Shell PLC
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=GB00B03MLX29
Access Investor Kit for Royal Dutch Shell PLC
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=GB00B03MM408
Access Investor Kit for Vodafone Group Plc
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=GB00BH4HKS39
Access Investor Kit for Royal Dutch Shell PLC
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US7802591070
Access Investor Kit for Royal Dutch Shell PLC
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US7802592060
Access Investor Kit for Vodafone Group Plc
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US92857W3088