The government has decided that it will not appeal against telecom giant Vodafone's victory in the Bombay High Court last month, which said the company does not owe taxes of Rs 3,200 crore for allegedly underpricing shares of a subsidiary in a rights issue to its parent.
Separately, Vodafone is contesting a more than $2 billion (Rs 12,000 crore) tax demand over its acquisition of Indian mobile operations in 2007 from Hutchison Whampoa.
Vodafone, the biggest foreign corporate investor in India, has been caught in a string of tax disputes since it entered the country seven years ago, hoping to tap the world's second biggest mobile phone market by customer numbers. Vodafone's treatment, seen by many investors as heavy-handed, has fuelled debate over India's unpredictable rules and regulations.
In the Bombay High Court, India's tax office had accused Vodafone India Services Private Ltd - a unit of the group - of under-pricing shares in a rights issue to its parent, and had demanded tax for two financial years to March 2011. Attorney General Mukul Rohatgi, the government's top lawyer, has recommended that the tax department should not challenge the verdict in the Supreme Court.
Transfer pricing is the value at which companies trade products, services or assets between units in different countries - a regular part of doing business for a multinational, but a practice which tax authorities often feel can be exploited.
Rules require all cross-border transactions between group companies to be valued at arm's length - or as if the transaction was with an unrelated company.
Several other multinationals, including IBM Corp, are fighting transfer-pricing cases in India. Tax claims on foreign firms in the past year has been a major concern for investors.
The lure of India's growing market, however, has continued to attract Vodafone. This year it spent $1.7 billion or over Rs 10,000 crore to fully own its main Indian unit, Vodafone India Ltd, which is the nation's No. 2 mobile phone carrier. Vodafone India bought radio airwaves worth more than $3 billion (over Rs 18,000 crore) in a government auction in February to beef up services.
Separately, Vodafone is contesting a more than $2 billion (Rs 12,000 crore) tax demand over its acquisition of Indian mobile operations in 2007 from Hutchison Whampoa.
Vodafone, the biggest foreign corporate investor in India, has been caught in a string of tax disputes since it entered the country seven years ago, hoping to tap the world's second biggest mobile phone market by customer numbers. Vodafone's treatment, seen by many investors as heavy-handed, has fuelled debate over India's unpredictable rules and regulations.
In the Bombay High Court, India's tax office had accused Vodafone India Services Private Ltd - a unit of the group - of under-pricing shares in a rights issue to its parent, and had demanded tax for two financial years to March 2011. Attorney General Mukul Rohatgi, the government's top lawyer, has recommended that the tax department should not challenge the verdict in the Supreme Court.
Transfer pricing is the value at which companies trade products, services or assets between units in different countries - a regular part of doing business for a multinational, but a practice which tax authorities often feel can be exploited.
Rules require all cross-border transactions between group companies to be valued at arm's length - or as if the transaction was with an unrelated company.
Several other multinationals, including IBM Corp, are fighting transfer-pricing cases in India. Tax claims on foreign firms in the past year has been a major concern for investors.
The lure of India's growing market, however, has continued to attract Vodafone. This year it spent $1.7 billion or over Rs 10,000 crore to fully own its main Indian unit, Vodafone India Ltd, which is the nation's No. 2 mobile phone carrier. Vodafone India bought radio airwaves worth more than $3 billion (over Rs 18,000 crore) in a government auction in February to beef up services.
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