BANGALORE, INDIA: Why is Vodafone taking on the Indian government? What happens if the government sticks to its stand? Here we answer some simple questions
Britain-based global telecom company Vodafone has served notice on the Indian government on its retrospective proposal to levy capital gain tax on a transaction that led to its buying equity in an Indian phone firm in 2007. The Prime Minister's Office was among those served the notice of dispute on the proposal in the Finance Bill, 2012, contending its retrospective nature violated international legal protections granted to international investors.
What if government doesn't agree
If the government refuses to meet the requirement or withdraw the proposed bill, the company has warned of appropriate steps, including commencement of arbitration under the investment treaty in a bid to protect its shareholders' interests. "If the legislation as drafted is made law, Vodafone will take whatever steps are necessary to protect our shareholders’ interests, which includes commencing an investment treaty arbitration against the government of India,” said the company.
Will Vodafone case affect investments?
Minister incharge of commerce and industry Anand Sharma has dismissed fears that the investments for foreign investors in India will be affected by the Vodafone case. "We have a very stable tax and policy regime in place in India and we have seen no signs of it affecting other investments.
What Vodafone says
Vodafone said that under the treaty the Indian government is liable to accord fair and equitable treatment to investors, provide security, not breach the legitimate expectations of investors in making investments and not deny justice or breach previously provided assurances. The government is also not supposed to take steps indirectly to expropriate the investment, it said.
What the government says
Retrospective changes in taxation is a common international practice in any international arbitration proceedings.
The firm locked horns with Indian government after it was serviced notice by the IT department to cough up Rs 11,000 crore taxes for its deal with Hutchison Essar Limited. And even though it won the legal battle with Supreme Court holding that it was not liable to pay taxes for the deal done on foreign shores, the government has pipped it by coming out with a proposal in the Finance Bill to retrospectively revise the IT Act 1962 that brings overseas deals such as Vodafone’s under tax net.