Global telecom carrier Vodafone Group plc of the U.K. on 17 April filed an international arbitration against the Indian government to solve the more than $2 billion tax case.

Nokia, the Finnish networks vendor, is also facing tax cases in India.

Vodafone took the new step after initiating several rounds of discussions with bureaucrats and the telecom and finance ministry.

Vodafone Egypt faces international arbitration

Vodafone is also currently involved international arbitration in Egypt as well. In October 2009 Telecom Egypt commenced arbitration against Vodafone Egypt in Cairo alleging breach of non-discrimination provisions in an interconnection agreement as a result of allegedly lower interconnection rates paid to Vodafone Egypt by Mobinil.

During the third quarter of fiscal 2014, Vodafone Egypt noted that the delayed arbitration hearing took place between 26 October and 7 November 2013. Final submissions will be submitted by all parties by the end of March 2014 with the result expected to be received in the second half of 2014, said Vodafone.

Can the new Govt. settle the issue? 

Reuters today reported that the British mobile phone operator was expected to go for an international arbitration after its talks with the Congress-lead UPA II government failed to find a solution last year.

The industry is expecting that the new government, which will be formed shortly after the election results on 16 May, will be able to settle the tax issue amicably. Despite the setback, Vodafone has committed to continue its investments plans in India.

In addition to its Capex plans, Vodafone last month increased its stake in India to 100 percent after buying additional 15.5 percent equity stake.

Though Vodafone confirmed about the move for the international arbitration, it did not share additional details.

A spokesman for the Indian finance ministry, which was in talks with Vodafone over the dispute, declined immediate comment.

Vodafone India a key market

Interestingly, India is an important market for Vodafone Group. Vodafone has around 160 million customers representing 38 percent of its total Group customer base. India now represents 10 percent of service revenue. In addition, India is one of the top data markets in the world. Vodafone started focusing more on data revenue.

Vodafone is also looking at acquiring telecom assets in India to utilize the consolidation move. It is in talks with several telecoms including Tata Teleservices.

Old is Gold

The $2 billion tax issue is almost 7-year old dispute. If India wins the arbitration, it will be big gainer. The benefit will be around Rs 14,000 crore plus penalty to the government.

In August 2007, Vodafone India (VIL) received notices from the Indian tax authority alleging potential liability in connection with an alleged failure by Vodafone International Holdings (VIHBV) to deduct withholding tax from consideration paid to the Hutchison Telecommunications International (HTIL) in respect of HTIL’s gain on its disposal to VIHBV of its interests in a wholly-owned subsidiary that indirectly holds interests in VIL.

On 16 March 2012 the Indian government introduced proposed legislation (the Finance Bill 2012) purporting to overturn the Indian Supreme Court judgment with retrospective effect back to 1962.

On 17 April 2012 Vodafone International Holdings BV filed a trigger notice under the Dutch-India Bilateral Investment Treaty (‘BIT’) signaling its intent to invoke arbitration under the BIT should the new laws be enacted.

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