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Vodafone Moves Closer to Negotiating Tax Settlement with Indian Government

Vodafone’s Indian tax dispute has moved a step closer to a resolution, after the government authorised the Finance Ministry to negotiate with a settlement with the mobile network.

The government had not been expected to move on the issue until after next year’s General Election, and may still face political difficulties in pushing through a deal.

Vodafone had offered to negotiate a settlement in the long running dispute, but had also said that it might take the matter to International Arbitration if the government pushed ahead with its revised tax code.

“We will accept the Vodafone offer to enter into a non-binding conciliation,” Finance Minister P Chidambaram said after the Cabinet Committee meeting.

Any agreement that is negotiated would still need to be approved by the government and then submitted to Parliament to vote on the necessary law changes that would permit it.

Vodafone has been fighting a US$2.2 billion tax demand ever since it bought its majority stake in the local mobile network in 2007. Although the company won the tax dispute, the government changed the law and made the changes retrospective, which then made the court verdict irrelevant.

However, a retrospective change in tax laws spooked foreign investors, and the government has been seeking a way of reversing the law change, while also not being seen as bowing to Vodafone’s demands.

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