NEW DELHI: Vodafone Plc last month quietly served notice to the Indian
government seeking international arbitration over their multi-billion
dollar tax dispute, before the finance ministry moved a Cabinet note for
withdrawing its conciliation offer to the UK based telecom operator.
Served at the end of January, Vodafone's notice challenges the government's right to slap a Rs 20,000-crore tax demand on it through a retrospective amendment in the Income-Tax Act to tax overseas transfer of assets based in the country. The notice has been served under the India-Netherlands Bilateral Investment Promotion Agreement (BIPA).
Served at the end of January, Vodafone's notice challenges the government's right to slap a Rs 20,000-crore tax demand on it through a retrospective amendment in the Income-Tax Act to tax overseas transfer of assets based in the country. The notice has been served under the India-Netherlands Bilateral Investment Promotion Agreement (BIPA).
The Indian authorities will contest the arbitration on the ground that
tax disputes were not covered under the treaty. "They have served
another notice. But India-Netherlands BIPA does not cover taxation," a
government official privy to the development told ET. Vodafone had
earlier served two notices to the government, before the two embarked on
a conciliation dialogue.
The government's move to withdraw from a compromise dialogue had surprised most observers but it now transpires that its actions may have been precipitated by Vodafone's notice. Both these developments signal a resumption in hostilities between the two parties over their tax row.
The feud has attracted the attention of international investors and raised questions about India's attractiveness as an investment destination.
The row has, however, not dissuaded Vodafone from stepping up its investment in India. The company recently hiked its stake in its Indian arm to 100 per cent and also bid aggressively in the auctions that concluded last week.
A Vodafone spokesperson said the company cannot comment on "resolution discussions" as it awaited further communication from the government about the status of the talks. "Vodafone has always said it would like to achieve an amicable resolution to this issue, but we cannot agree to any proposal that prejudices our legal position or seeks to tax the same event twice.
The company will continue to take whatever steps are necessary to protect the interests of its shareholders," said the company spokesperson. But officials aware of developments say little headway had been made as Vodafone first insisted on arbitration under the United Nations Commission on International Trade Law (Uncitral) against the Cabinet's decision of having it under the Indian Arbitration and Conciliation Act and then wanted the talks to be held in an international jurisdiction instead of an Indian city.
It subsequently wanted to include another case relating to a Rs 8,500-crore transfer pricing dispute in the conciliation process, a demand the government did not accept. Vodafone subsequently sent an arbitration notice to the government and the government decided to withdraw its offer.
The origins of the dispute lie in the government's decision, a few years ago, to impose a tax liability of Rs 7,899.9 crore on Vodafone, on the grounds that it had failed to deduct tax on its $11.07-billion payment to Hutchison Telecommunications International for the acquisition of Hutchison Essar (now called Vodafone India).
The tax demand was struck down by the Supreme Court, but the government then amended the law retrospectively in the 2012-13 budget, making the company liable to pay tax. Vodafone served its first arbitration notice to the government in April 2012, but tempers on both sides subsequently cooled down and the two agreed to conciliation discussions last year.
The government's move to withdraw from a compromise dialogue had surprised most observers but it now transpires that its actions may have been precipitated by Vodafone's notice. Both these developments signal a resumption in hostilities between the two parties over their tax row.
The feud has attracted the attention of international investors and raised questions about India's attractiveness as an investment destination.
The row has, however, not dissuaded Vodafone from stepping up its investment in India. The company recently hiked its stake in its Indian arm to 100 per cent and also bid aggressively in the auctions that concluded last week.
A Vodafone spokesperson said the company cannot comment on "resolution discussions" as it awaited further communication from the government about the status of the talks. "Vodafone has always said it would like to achieve an amicable resolution to this issue, but we cannot agree to any proposal that prejudices our legal position or seeks to tax the same event twice.
The company will continue to take whatever steps are necessary to protect the interests of its shareholders," said the company spokesperson. But officials aware of developments say little headway had been made as Vodafone first insisted on arbitration under the United Nations Commission on International Trade Law (Uncitral) against the Cabinet's decision of having it under the Indian Arbitration and Conciliation Act and then wanted the talks to be held in an international jurisdiction instead of an Indian city.
It subsequently wanted to include another case relating to a Rs 8,500-crore transfer pricing dispute in the conciliation process, a demand the government did not accept. Vodafone subsequently sent an arbitration notice to the government and the government decided to withdraw its offer.
The origins of the dispute lie in the government's decision, a few years ago, to impose a tax liability of Rs 7,899.9 crore on Vodafone, on the grounds that it had failed to deduct tax on its $11.07-billion payment to Hutchison Telecommunications International for the acquisition of Hutchison Essar (now called Vodafone India).
The tax demand was struck down by the Supreme Court, but the government then amended the law retrospectively in the 2012-13 budget, making the company liable to pay tax. Vodafone served its first arbitration notice to the government in April 2012, but tempers on both sides subsequently cooled down and the two agreed to conciliation discussions last year.
If the matter goes to international arbitration, the government will
argue that the India Netherlands BIPA does not cover tax issues. "The
provisions of paragraphs 1 and 2 in respect of the grant of national
treatment and most favoured nation treatment shall also not apply in
respect of any international agreement or arrangement relating wholly or
mainly to taxation or any domestic legislation or arrangements," says
paragraph 4 of the treaty.
Source: Economic Times
Source: Economic Times
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