Vodafone has served a fresh arbitration notice to the Indian government over the Rs 200 billion tax-dispute, following which the government has sought the withdrawal of its conciliation offer to settle the tax issue amicably.
In the arbitration notice, dated April 17, 2014, Vodafone has stated that it will go ahead with international arbitration, preferably in London, to resolve the long-pending tax dispute regarding the acquisition of Hutchison Whampoa?s stake in Hutchison Essar in 2007. As per the arbitration notice, Vodafone International Holdings BV, has commenced international investment arbitration against the Indian government under the bilateral investment treaty between India and the Netherlands.
Following the arbitration notice, the Ministry of Finance in consultation with the Ministry of Law has drafted a Cabinet note for withdrawing the non-binding conciliation offer that the government had made to Vodafone in June 2013.
The Cabinet had in June 2013 approved a proposal from the Ministry of Finance to go in for conciliation with Vodafone to resolve the capital gains tax dispute related to its 2007 acquisition. While the basic tax demand stands at Rs 79.9 billion, the total outstanding is Rs 200 billion including penalty. However, in February 2014, the Ministry of Finance circulated a draft Cabinet note seeking to withdraw the conciliation talks after Vodafone demanded that the transfer-pricing row be clubbed with the capital gains tax case.
At present, Vodafone is involved in twin tax disputes with the government. One pertains to its 2007 acquisition of Hutchison Whampoa?s stake in Hutchison Essar and the second case relates to the transfer-pricing case involving Vodafone India Services.
In 2012, the Supreme Court had ruled in Vodafone?s favour stating that it was not liable to pay any tax over the acquisition of assets in India from Hong Kong-based Hutchison. However, the government later changed the tax regulations to enable it to claim tax retrospectively on acquisition deals concluded in India.
