Mobile phone networks giant Vodafone has cranked up its dispute with the Indian government by serving notice that it is prepared to go to international arbitration over India's plans to introduce a retrospective tax law which will hit the UK-based company hard.
Vodafone, through its Dutch subsidiary Vodafone International Holdings, has served the Indian government with a Notice of Dispute regarding proposals in the Indian Finance Bill 2012 that violate the international legal protections granted to Vodafone and other international investors in India.
This is the first step required prior to the commencement of international arbitration under the Bilateral Investment Treaty (BIT) between India and the Netherlands.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Moving the goal postsVodafone could be stiffed for a £1.3bn capital gains tax bill relating to its 67% interest in Vodafone Essar, the Indian mobile unit of Hutchison Whampoa in which Vodafone invested over $11bn in 2007, if the Indian government presses on with its plans to ignore the ruling of the Indian Supreme Court "that Vodafone had no liability to account for withholding tax on its acquisition of interests in Hutchison Essar Limited (now Vodafone India Limited) in 2007."
Vodafone's argument is that because the transaction was made between two non-Indian companies (itself and Hong Kong's Hutchison) overseas, Indian tax rules should not apply.
It is fairly evident that the Indian government believes that Vodafone used a loophole to avoid paying capital gains tax and, irked by the Supreme Court's decision, it is now proposing to retrospectively alter the rules so that Vodafone will have to stump up.
Tax dodgers of the world uniteVodafone, not surprisingly, has cried "foul" and it has a lot of multi-national companies on its side. As the recent press reports on the pittance paid in UK tax by the likes of Apple, Amazon and Google, despite the huge profits they make from UK customers, multi-national companies will go to extraordinary lengths to avoid chipping in to public coffers.
Vodafone believes that the retrospective tax proposals amount to a denial of justice and a breach of the Indian government's obligations under the BIT to accord fair and equitable treatment to investors.
"Vodafone has asked the Indian government to abandon or suitably to amend the retrospective aspects of the proposed legislation as Vodafone would prefer to reach an amicable solution to this matter," Vodafone said in a statement. India contributes around 8% of Vodafone's global revenues.
"However, if the Indian government is not willing to do so, Vodafone will take whatever steps are necessary to protect its shareholders' interests, including commencing investment treaty arbitration proceedings under the BIT against the Indian government," the statement continued.
Shares in Vodafone were up 2p to 172p at 11:00am.
December NS&I Premium Bond winners revealed - have you won the jackpot?
Two Premium Bond holders are now millionaires as NS&I reveals December winners. Find out if you’re one of them
By Vaishali Varu Published
Lloyds, Halifax and Bank of Scotland to shut another 45 branches
Lloyds Banking Group, which includes Halifax and Bank of Scotland, is set to close a further 45 branches in 2024 - find out if a branch near you is closing.
By Vaishali Varu Published