Vodafone, one of the world’s largest telecommunication companies, has continued its dispute with tax authorities in India.
The reason for this situation was the fact that in 2007 it has purchased the Indian telecommunication company Hutchinson Essar.
Indian authorities took issue with the way the deal was structured. The 11 billion USD were wired to the Cayman-registered HTIL in order to acquire 67% stake in Hutchinson Essar, then the operation of the telecommunications in India. As a result, the Indian government decided that the corporation owes to the Treasury 2.2 billion USD in back taxes and penalties.
In order to widen the tax net Indian government in 2012 Finance Bill has defined that “…any share or interest in a company or entity registered or incorporated outside India…shall always be deemed to have been situated in India if the share or interest derives, directly or indirectly, its value substantially from the assets located in India”. Vodafone is disputing the fact that this piece of legislation has retrospective power.
Vodafone’s Dutch subsidiary issued a Notice of Dispute, a first step in the international arbitration proceedings appealing to Netherland’s Bilateral Investment Treaty with India. As a subsidiary, Vodafone International Holdings BV is an investor as defined in that treaty.
The company has emphasized its willingness to reach an amicable solution but also warned that it is ready to fight in order to protect the interests of its shareholders.
At the moment government officials have said that they will go with the Parliament decisions, which is expected to be reached in the first weeks of May.