Government asks I-T department to apply Vodafone principle on similar Transfer Pricing cases

MUMBAI: In what will be widely perceived as a sentiment booster for investors, the government has asked the I-T department to apply the principle behind a tax ruling involving Vodafone Group to all similar transfer pricing cases, an official letter seen by Reuters showed.

Reacting to the news, Dinesh Kanabar of KPMG India told ET Now, "Companies had held back investment on uncertainty in transfer pricing. Orders passed earlier will be rectified post government's decision." "I am happy that the government has proactively moved on transfer pricing cases," Kanabar added.

To avoid "fruitless litigation" and allay investors' concerns on tax issues, government had on Wednesday decided against appealing a court order that absolved Vodafone of Rs 3,200 crore tax demand in a transfer pricing case.

As Cabinet decided against challenging the Bombay High Court order in this matter, Telecom Minister Ravi Shankar Prasad had said the government wants to convey a clear and positive message to investors globally that it would be "fair, transparent and within the four corners of law".

"The government will not appeal in Supreme Court the October 10 order of the Bombay High Court in the Vodafone case," Prasad said after a meeting of the Union Cabinet.

The decision of not filing an appeal in the Vodafone case was taken at the highest level following advice by Attorney General Mukul Rohatgi.

Tax lawyers had said they expected the government order to impact all the past and future cases.

Many of the largest foreign companies in India, including IBM and Microsoft, are involved in litigation over demands made by the tax office related to transfer pricing adjustments in the last couple of years.