Vodafone, govt fail to settle on arbitrator for tax dispute

18 Aug 2014

UK-based Vodafone Group and the Indian government have been unable to agree on a third arbitrator to resolve their long-standing INR200 billion (USD3.28 billion) tax dispute, the Economic Times reports. The failure pushed the deadline back by a further month and if the two sides are unable to agree on a mediator by the next date, Vodafone has the right to move the International Court of Justice (ICJ) to resolve the dispute. Both parties have played down the disagreement, saying that the delay does not represent any hostility between the duo. There appears to be some conflict towards the issue amongst the new Indian government, with PM Modi refusing to enact retrospective changes as part of efforts to encourage investment, whilst the finance minister has not scrapped the offending amendment made to the tax law under the previous administration.

According to TeleGeography’s GlobalComms Database, the dispute is in relation to the USD11 billion acquisition of Hutchison Whampoa’s stake in Vodafone India (then Hutchison Essar) in 2007. Vodafone challenged the government’s claim that Vodafone had failed to pay tax on the deal, noting that Indian law at the time did not require it to withhold tax on the acquisition as the transaction was carried out by two foreign companies, and that capital gains tax was usually paid by the seller, not the buyer. After the case made its way through India’s byzantine judicial system to the Supreme Court in January 2012, the apex body ruled in favour of the UK group. However, in May that year the government introduced new legislation – the Finance Bill 2012 – that would allow it to tax the company retrospectively. Negotiations continued for another two years but proved fruitless and in Vodafone finally filed for international arbitration in May 2014.
India,Vodafone India (formerly Hutchison Essar),

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