Vodafone MD gets ED notice over money laundering

Marten Pieters, Vodafone India MD

The notice says that every proceeding under subsection (2) and subsection (3) of Section 50 of the Prevention of Money Laundering Act shall be deemed to be a judicial proceeding within the meaning of Section 193 and Section 228 of the Indian Penal Code. It also states that if the company fails to give evidence as mentioned in the schedule, it will be liable to penal proceedings under the Prevention of Money Laundering Act.

The ED notice comes at a time when the company is embroiled in a major taxation tiff with the government over its 2007 acquisition of Hutchison's stake. The issue is payment of capital gains tax, which Vodafone did not pay as the deal was between two overseas entities. However, the tax department demanded the same. After a nearly five-year legal battle, the Supreme Court ruled in the company's favour in January. The government in March in its Budget amended the Income Tax Act, 1961, empowering itself to tax all cross-border deals where the underlying assets are in India. Since the amendment is retrospective in nature, it is widely seen as the government planning to demand the tax from the company.

Vodafone has said that it is exploring all options to contest this. It is likely that that the company would seek damages from the government under the India-Netherlands bilateral investment treaty in the event the tax notice is served since it has invested in India through its subsidiary in the Netherlands.

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