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Vodafone notice to Centre over tax proposals
Girja Shankar Kaura/TNS

New Delhi, April 17
After Russia’s Sistema and Norway’s Telenor, British telecom giant Vodafone today became the third of the foreign telecom companies operating in the country to serve a legal notice on the Government of India.

The grounds for the notice are different from those of the former two. Sistema and Telenor had served legal notices on the government o last month seeking protection of their assets in India under the bilateral trade treaty after the Supreme Court cancelled 122 2G Spectrum licences issued during the tenure of former Telecom Minister A Raja. Vodafone notice is in connection with the proposals of the Finance Ministry in the Finance Bill 2012 about the retrospective tax legislation.

Vodafone has threatened to drag the government to international arbitration over retrospective tax legislation, under the bilateral investment treaty (BIT) between India and the Netherlands.

In a statement issued here, the British telecom operator, which is the second largest in the world after China Mobile, said, “Vodafone 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.”

The notice came through its Dutch subsidiary Vodafone International Holdings BV (“VIHBV”).

It said, “This is the first step required prior to commencement of international arbitration under the Bilateral Investment Treaty (“BIT”) between India and the Netherlands. VIHBV is a company constituted under the laws of the Netherlands and therefore an investor as defined under Article 1(d) of the Treaty”.

The dispute arises from the retrospective tax legislation proposed by the Indian government which, if enacted, would have serious consequences for a wide range of Indian and international businesses, as well as direct and negative consequences for Vodafone, it said.

Vodafone said, “The proposed legislation would also countermand the verdict of the Indian Supreme Court in January 2012, which ruled that Vodafone had no liability to account for withholding tax on its acquisition of indirect interests in Hutchison Essar Limited in 2007.”

In the Budget, Finance Minister Pranab Mukherjee announced a proposal to amend the Income Tax Act to bring overseas deals such as Vodafone’s purchase of Hutchison under tax net after the Supreme Court held that the UK firm was not liable to pay the Rs 11,000 crore in taxes.

This was sought to be done through a retrospective amendment to the Income Tax Act which gives authorities powers to reopen cases dating to as far back as 1962 under the Finance Bill 2012. The Finance Minister was categorical in saying that India was not a tax haven, as brought forward in the proposal.

In the notice, Vodafone has asked the Indian government to abandon or suitably amend the retrospective aspects of the proposed legislation as Vodafone would prefer to reach an amicable solution to this matter.

"However, if the Indian government is not willing to do so, Vodafone will take whatever steps are necessary to protect its shareholders' interest, including investment treaty arbitration proceedings under the BIT against the Indian government," the company said.

It said that under the bilateral investment treaty, the Indian government is obliged, amongst other things, to accord fair and equitable treatment to investors, provide full protection and security, not breach the legitimate expectations of investors in making investments, not deny justice or breach previously provided assurances and not take steps to indirectly expropriate the investment.

The company said, “Vodafone believes that the retrospective tax proposals amount to denial of justice and breach of the Indian government’s obligations under the bilateral investment treaty to accord fair and equitable treatment to investors”.

The Indian government’s retrospective tax proposals have raised widespread concern within India and internationally and have been criticised by businesses and industry bodies representing more than 2,50,000 companies across the US, Europe and Asia, it said.

Earlier last month, both Sistema and Telenor served notices to the Indian Government invoking clauses under the bilateral investment treaties with Russia and Singapore respectively.

While seeking a solution from the Indian Government within six months, Telenor also claimed damages of nearly $14 billion (around Rs 70,000 crore).

Hardened Stance

• Vodafone has issued a Notice of Dispute to the Indian Government over proposals in the Indian Finance Bill 2012
• It has threatened to drag the government to international arbitration over retrospective tax legislation, under the bilateral investment treaty between India and the Netherlands