Responding to the Le Monde article, which claims that France waived tax recovery worth 143.7 million euros from a French company belonging to Anil Ambani’s Reliance Group, French Ambassador to India Alexandre Ziegler said that a settlement was reached, and that the “settlement was conducted in full adherence with legislative framework.”
He added that the tax dispute was pertaining to 2008-1012 period.
“This settlement was conducted in full adherence with legislative and regulatory framework governing this common practice of the tax administration. It was not subject to any political interference whatsoever.”Alexandre Ziegler, French Ambassador
What Does the Report Claim?
Le Monde claimed these tax recoveries, which were relentlessly pursued by the French tax authorities for years, were dropped months after the Modi government negotiated the deal for 36 Dassault Rafale fighter aircraft, for which Anil Ambani was a major offset partner.
According to the report, French authorities had found discrepancies in Reliance Flag Atlantic France’s overseas transactions within other Reliance companies. Alleging they didn’t follow transfer prices, French authorities fined the company twice, following two separate audits, for 60 million euros and 91 million euros.
Responding to the report, Reliance Communication, in a clarification, denied any 'favouritism' or 'gain' in the tax settlement, besides asserting that the tax demands were 'unsustainable and illegal'.
The Defence Ministry too, issued a statement saying that neither the period of tax concession nor subject matter of concession relate to Rafale procurement.
After the first audit, the company had offered to settle the matter with a payment of 7.6 million euros, which the French authorities had declined. However, months after the Rafale deal was signed, this old offer was accepted by the French authorities.
What is the Controversy About?
At the heart of the controversy is transfer prices. Transfer prices is a system used to control transactions between different divisions or companies controlled by one large company.
Since using the advantage of being under one single company, the divisions can alter their prices to save taxes, an auditor is appointed to study the market rate of transactions and fix a transfer price for the different divisions to transact with each other.
According to French tax authorities, the Reliance Flag Atlantic France didn’t adhere to transfer prices rules.
The Irregularities Found By Tax Officials
The article quotes a state auditor’s report on 30 January 2015, which found two major tax concerns regarding this company. First, the company improperly documented its transactions with other companies within the Reliance Group. Secondly, the parent company of group, Reliance Globalcom Ltd, is registered in Bermuda, which has been blacklisted by the EU as a tax haven.
First Tax Audit
As part of their investigation, the French authorities conducted a tax audit between 1 April 2007 to 31 March 2010 and found discrepancies in Reliance Flag Atlantic France’s transactions with other companies in the Reliance group. They were fined 60 million euros.
This was opposed by the company in 2013, who offered a settlement of Rs 7.6 million euros. This was turned down by the French Tax authorities and appeals were filed by the company.
Second Tax Audit
Between 1 April 2010 to 31 March 2012 tax authorities conducted a second audit. Once again, problems were found with transfer prices and Reliance Flag Atlantic France was slapped with a fine of 91 million euros.
The company challenged the second audit as well.
By the end of 2012, the total of Reliance Flag Atlantic France’s total tax dues were 151 million euros.
The Surprise Settlement
According to Le Monde, in an audit report dated 29 September 2015, the company Reliance Flag Atlantic France claimed it was "about to reach an agreement with the tax authorities thanks to a proposal for a comprehensive settlement for an overall amount between 7.5 and 8 million euros."
This was an amount rejected by the French authorities during the first audit.
Sketchy Timing
According to the article, this dispute was settled between February and October 2015, at a time when India and France were negotiating the sale of thirty-six Rafale combat aircraft.
In a Twitter thread, one of the Le Monde reporters who broke the story explains the controversy.
‘Modi Hai Toh Mumkin Hai,’ Says Congress
Addressing a press conference, Congress spokesperson Randeep Surjewala hit out at PM Modi. Briefing the media on Le Monde’s report, he said that the fact that a particular company reaped benefits on multiple instances shows that the prime minister has been acting as a ‘middleman’ in the entire deal.
“Modi hai toh mumkin hai,” he said taking a dig at the prime minister.
Earlier, he had tweeted suggesting that the ‘corruption’ and ‘money trail’ in the alleged Rafale scam has been exposed by the report.
CPI(M) senior leader Sitaram Yechury also raised the issue in a series of tweets, alleging that the nexus is ‘out in the open’ and it shows that the Modi government benefited a ‘crony businessman’.
RCom Responds to Allegations
Meanwhile, Reliance Communication issued a clarification on the report. It denied any 'favouritism' or 'gain' saying that its subsidiary Reliance FLAG Atlantic France had settled the tax disputes as per France's legal framework.
It further said that the tax demands were 'unsustainable and illegal'.
"During the period under consideration by the French Tax Authorities - 2008-2012 -ie nearly 10 years ago, Flag France had an operating loss of Rs 20 crore (ie Euro 2.7 million). French tax authorities had raised a tax demand of over Rs 1,100 crore for the same period. As per the French tax settlement process as per law, a mutual settlement agreement was signed to pay Rs 56 crore as a final settlement," RCom said in an official statement.
Defence Ministry Responds Too
The Defence Ministry also issued a statement saying that neither the period of tax concession nor subject matter of concession relate to Rafale procurement.
“Any connections drawn between the tax issue and the Rafale matter is totally inaccurate, tendentious and is a mischievous attempt to disinform,” it also said.
Earlier Controversies
A report published in The Hindu on 10 February quotes an internal Defence Ministry note and suggests that there were “parallel negotiations” conducted by the PMO with the French side.
The report further states that the MoD had objected to these negotiations, which purportedly “weakened” India’s negotiating position in the Rafale deal.
The note, dated 24 November 2015, was undersigned by then-Defence Secretary G Mohan Kumar and Deputy Secretary SK Sharma, and was also brought to the attention of then-Defence Minister Manohar Parrikar.
In a press conference, AICC President Rahul Gandhi said that the report showed in “black and white” that the prime minister was involved in the Rafale deal scam. He accused PM Modi of negotiating on Anil Ambani’s behalf.
(With inputs from Le Monde)
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