Political Economy

Favourable Tax Settlement for Anil Ambani in France Keeps Spotlight on Rafale

A Le Monde report says that around the time that the Rafale deal was being negotiated, the French authorities decided to waive off 140 million euros in taxes they had demanded from an Ambani group company.

New Delhi: Anil Ambani’s Reliance group was able to secure a favourable tax settlement from French authorities in the months leading up to and after the announcement of the controversial Rafale deal, a new media report has said.

According to a report published in the well-known French newspaper Le Monde, a company called ‘Reliance Flag Atlantic France’ was reportedly subjected to two tax probes between 2007 and 2012.

French tax authorities – who allegedly took issue with the company’s transactions with other group firms, making it a matter of transfer pricing – slapped two demand notices of 60 million euros and 91 million euros.

Full Text: French Report on How Modi Govt Pushed Anil Ambani as Rafale Deal Partner

What was surprising about the eventual settlement, Le Monde notes, is that firstly it came two years after French authorities initially refused a very similar offer made by Reliance.

And secondly, it involved the French government waiving off a tax demand of nearly 140 million euros.

The Wire sent the ADAG group a questionnaire, to which a company spokesperson responded by describing the French tax demands which pertained to 2008 as “completely unsustainable and illegal”. Insisting that Reliance Flag – a subsidiary of Reliance Communications, India, which owns a terrestrial cable network and other telecom infrastructure in France – had settled the tax disputes “as per [the] legal framework in France available to all companies operating [there]”  and that there had been no “favouritism or gain from settlement.”

Two tax probes

The first tax notice, which included interest and surcharges, came following a tax audit for the period April 2007 to March 2010. According to the Le Monde report, the authorities asked for 60 million euros, but the Reliance company refused.

Another probe of Reliance Flag Atlantic France, between 2010 to 2012, saw authorities asking for an additional 91 million euros in taxes including interest and penalties.

In 2013, the company proposed to settle the dispute with a payment of 7.6 million euros, but the French government refused.

With no compromise in sight, the company’s auditor, in January 2015, apparently raised apprehensions over the provisioning that would be required and noted that they were unable to certify whether the firm’s annual accounts were in accordance with “French accounting rules and principles”. (France follows a calendar fiscal year, January-December).

Then the settlement

Matters, the report notes, eventually changed by September 2015. A report from the firm’s new auditor (Fabrice Abtan, Aurealys) notes that the Reliance Flag Atlantic France was able to reach an agreement with the country’s tax authorities for a “comprehensive settlement for an overall amount between 7.5 and 8 million euros”.

“All company tax remittances, CVAE (contributions on value added companies) and withholding tax for the years from 2008 to 2014, are settled against the sum of 7.3 million euros. A nice gain for Anil Ambani: he saves 143.7 million euros in taxes,” the Le Monde report notes.

The Le Monde report also quotes an anonymous source “close to Ambani” as saying that the firm had reportedly settled things with Emmanuel Macron in early 2015, at his office in Bercy. Macron, now the French president, was at the time the minister of economy and industry.

Also read: With Its Big Little Lies on Rafale, the Modi Govt is Treading a Treacherous Path

The Wire could not independently confirm this information.

Reliance’s statement to The Wire says, “During the period under consideration by the French Tax Authorities – 2008-2012 i.e. nearly 10 years ago, Flag France had an operating loss of Rs 20 crore (i.e. Euro 2.7 million). The French tax authorities had raised a tax demand of over Rs 1100 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.”

Significance of timing?

The timing of the French tax settlement, if true, raises questions in the context of the larger Rafale deal. According to Le Monde, France decided to forego 140 million euros sometime between February 2015 and September 2015.

The Rafale deal was conceived between February-March 2015 – an aircraft contract whose offsets component went to Anil Ambani’s Reliance Group.

Former French president Francoise Hollande triggered a massive controversy last year by telling Mediapart, a French website, that the choice of Anil Ambani as offset partner for the 36 Rafales deal struck by Prime Minister Narendra Modi had been imposed by the Indian side. The Modi government, Dassault Aviation and Ambani have denied Hollande’s claim, but the French government has yet to directly contradict it.

The Le Monde media report does not present any evidence that the Rafale deal and the tax write-off are connected. However, it does quote an anonymous tax report, who, speaking about the Reliance case, says that if “tax files are stuck for a long time in litigation”, the “political context” can often weigh in and have a particular file be pushed towards speedy conclusion.

Note: This story was updated at 1400 on April 13, 2019 with Reliance Communications’ response