Vodafone might use pact with Netherlands as shield in tax tussle

Corporate lawyers said the company could go to international tribunals to fight the I-T Department?s demand

Vodafone, corporate lawyers said, is likely to use the India-Netherlands investment protection agreement as a shield and go to international tribunals to fight the Income Tax Department’s demand for Rs 14,000 crore.

“Vodafone can go for arbitration based on the treaty of the Indian government with the Netherlands,” said corporate tax lawyer H P Ranina. “They are alleging that India violated the treaty, and are saying that if they demand money, they can invoke provisions of the treaty.”

The Income Tax Department had revived its Rs 14,000-crore tax demand on Vodafone over its acquisition of Hutchison Whampoa’s Indian mobile assets in 2007.

The tax tussle has made the government amend 50-year-old tax laws, enabling it to make retroactive tax claims on corporate mergers and acquisitions.

But Vodafone can challenge the retrospective tax amendment in court, Ranina pointed out, saying it was unconstitutional and that a demand based on that would be invalid. Vodafone had in April threatened the Indian government that it would go for arbitration proceedings in its fight over the retrospective tax proposal.

In a statement issued on Saturday, Vodafone said the I-T reminder did not include a deadline for the payment. “Vodafone has replied to this reminder, stating that it continues to believe that no tax is payable on the above transaction,” the company said in the statement.

Since the acquisition in 2007, Vodafone has been in a tussle with the tax authorities over the matter. About a year ago, the Supreme Court had ruled in favour of Vodafone in a five-year, $2-billion case with the tax authorities. The government then introduced the retroactive tax claim clause.

In December, the government had revived its arguments against the January 2012 Supreme Court judgment, seeking reconsideration of the verdict. The plea is expected to be heard in February.