India Indicates Settlement on Vodafone Tax Dispute

The Indian government has indicated that it may consider settling the £1.3bn tax dispute with Vodafone, a day after Prime Minister David Cameron ended his India visit.

The country's Finance Minister Palaniappan Chidambaram has clarified that the cabinet will consider the British telecom company's offer for settlement. He added that the government has also sought legal advice on a separate dispute that involves the Dutch oil major Shell.

"As far as Vodafone is concerned, they had written to us proposing conciliation," Chidambaram said.

"We have written back saying that yes your request will be considered by the competent authority. So, the matter will go to the cabinet".

In 2012, the Indian government had amended its income tax law to enable retrospective re-imposition of taxes on overseas deals that involved local assets which made Vodafone liable to pay taxes on a stake deal in an Indian telecom company, Hutchinson Essar.

Vodafone has reportedly invoked India-Netherlands bilateral investment treaty few months back to challenge India's claims before an international panel. In January the government had sent a reminder on the tax payment.

The amended law had caused severe criticism in and out of the country, forcing the government to reconsider its options. Now it is likely to look at further amendments to the income tax law to allow out-of-court settlements in cases that had come up due to the retrospective taxation rule.

The government's dovish comments come as David Cameron, on his recent visit to India, indicated his support for Vodafone suggesting that unpredictable tax systems could prove damaging for businesses.

According to the Indian television channel NDTV, Cameron said that the " tax system has to be fair to all. Every company needs to know about the tax implications of any deal. If the tax system becomes completely unpredictable, it becomes totally damaging for the business".