The Vodafone taxation controversy in India has again resurfaced. Vodafone has been served with tax due notice by Indian tax authorities. Vodafone reacted in the much anticipated manner and denied any tax due on its part. Vodafone is also feeling confident due to the ruling of Supreme Court of India in its favour.
Meanwhile, the Parliament of India amended the tax law of India with retrospective effect. At Perry4Law, we believe that legally there are few options still available to both Indian government and Vodafone. It is not the situation that either party to the dispute has absolute case.
While the Indian government has the backing of a retrospective law yet Vodafone can invoke arbitration proceedings before international tribunals under the concerned Bilateral Investment Protection Agreement.
In fact, Vodafone has already served an arbitration notice to the Indian government regarding the proposed tax. However, Indian government declared such notice to be premature and ignored it. Now that Indian government has raised fresh tax liability claims, Vodafone may serve a fresh notice to initiate the international arbitration proceedings.
Vodafone has already acknowledged the receipt of fresh demand notice by Indian tax authorities. However, Vodafone told Indian government that it is not liable to any tax on the deal in question. The reminder does not include a deadline for payment and it pertains to the alleged capital gains tax arising from the sale of assets by Hutchison Whampoa to Vodafone in 2007.
Now that a fresh tax demand has been raised, it is for the Vodafone to challenge the same either in Indian courts or at an international arbitration forum. It seems Vodafone would prefer the arbitration mode as against the litigation in India but only time would tell what would be Vodafone’s choice.