India seeks to cancel Vodafone Group tax talks – memo

India plans to withdraw from talks with Vodafone Group Plc to resolve a nearly $2 billion tax dispute after the British operator pushed for the inclusion of a separate tax case in the talks, according to an internal government note seen by Reuters.

The finance ministry plans to seek the cabinet’s approval to withdraw the conciliation proceedings, the note said. Vodafone (VOD.L) wanted a transfer pricing dispute involving one of its units to be made part of the talks, it said.

Withdrawal of the conciliation proceedings could mean the tax office raising a fresh demand on Vodafone.

“The matter related to Vodafone will be taken to the cabinet, and the cabinet will take a final decision,” D.S. Malik, a finance ministry spokesman, told Reuters, declining to share specifics of the proposal.

A Vodafone spokesman in London declined to comment.

The world’s second-largest mobile operator, which entered India in 2007 by acquiring Hutchison Whampoa’s mobile phone assets, has been contesting a tax bill of about 112 billion rupees over the acquisition.

The Supreme Court ruled in 2012 that Vodafone was not liable to pay any tax over the transaction, but the government changed rules that allowed it to make retroactive tax claims on already-concluded deals, drawing criticism from business groups.

The cabinet in June last year approved a proposal to start conciliation talks with Vodafone over the tax dispute. While formal talks are yet to begin, Vodafone and the government officials had a series of meetings last year.

Vodafone is separately contesting disputes arising out of the so-called transfer pricing deals involving its unit Vodafone India Services Private Ltd. Indian tax office had asked Vodafone to pay about $600 million in the dispute, before the demand was halted by a court.