Vodafone to counter Indian tax authorities via international arbitration treaty

Telecom Lead India:
Telecom major Vodafone could use international arbitration route to settle its
tax dispute with the Indian tax authorities.

Due to limited domestic options, the telecom giant is
likely to rely on international arbitration under the India-Netherlands
investment protection agreement rather than approach Indian courts.

Meanwhile, the inter-ministerial government panel has
decided to inform Vodafone that its arbitration notice under the
India-Netherlands investments protection treaty was premature.

“We will tell them that their notice under India-Netherlands BIPA
(Bilateral Investment Protection Agreement) is premature,” said a senior
finance ministry official.

Vodafone, however, is of the view that the Indian
government had breached clauses in the bilateral tax treaty that calls for
‘fair and equitable treatment of investments, thereby violating legal
protections granted to the company, the executive aware of the company’s plans

Telecom major Vodafone may take action against India on tax

Recently, Vodafone served a dispute notice to the Indian
government through its Dutch subsidiary, which was the first step towards
initiating international arbitration proceedings under the India-Netherlands
bilateral treaty

The notice came as a development over 2012 budget that gave
the government power to retrospectively tax the company’s $11-billion
acquisition of Hutchison Essar in 2007.

The government had also set up an inter-ministerial group
headed by finance secretary RS Gujaral to frame its response to Vodafone

The government says the retrospective amendment will impact
only those transactions in which assessment order has not yet been passed. The
finance ministry has also maintained that tax issues are not covered under
India-Netherlands BIPA.

It is expected that Vodafone will contend that international examples of
retrospective tax laws cited by the finance ministry were misleading as they
had never resulted in companies that had won final judgements from the highest
courts having to cough up tax for past deals.

Additionally, Vodafone expects the arbitration procedure to
take about two years and is looking at a verdict by 2014.

$2.2 billion tax: Vodafone CEO Vittorio Colao meets Indian
finance minister

To solve the $2.2 billion tax issue, Vodafone group CEO
Vittorio Colao recently met Indian finance minister Pranab Mukherjee

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