Vodafone to get tough response from govt on tax battle

The government just toughened its stance on the Vodafone issue. After Vodafone responded via a press release yesterday saying they are disappointed with the government’s ways of not doing away with the uncertainty regarding retrospective taxation, the government may now send a tough response to the telecom giant.

CNBC TV18 reported that there is virtually no ground in Vodafone case to invoke Dutch BIPA (Bilateral investment promotion and protection agreements). The government has said that Vodafone international is just a holding company in Netherlands and therefore they feel evenDutch BIPA does not apply and cannot be invoked. Even the Dutch government has not raised any objection to the taxation issue.

[caption id=“attachment_305514” align=“alignleft” width=“380” caption=“Vodafone will find it difficult to hide behind BIPA. Reuters”]  [/caption]

If Bipa is invoked at all, it might be the UK one. But if Vodafone invokes Bipa that would contradict its own pleadings in the Supreme Court. In the Court it had pleaded that there has been no asset transfer in India. However under Bipa, it will have to seek cover as an investee in a contracting state.

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The sources said the government cannot accept Vodafone’s claim of breach of assurance as Vodafone is quoting the Prime Minister’s communication out of context. This refers to a letter written in February 2010 by Indian Prime Minister Manmohan Singh to the then British Prime Minister Gordon Brown.

Dr Singh is quoted as having written, “I also understand that there is no retrospective application of taxation and that Vodafone will have the full protection of the law.”

Vodafone said in a release yesterday that they would do whatever it takes to protect shareholder value. “It would be grossly unjust if, on the basis of legislation passed five years after the event, Vodafone were to be charged tax on a gain made by someone else, especially where the Indian Supreme Court unambiguously ruled that no tax was payable in India according to the laws of India in force in 2007,” they wrote.

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Pranab Mukherjee said in the Parliament earlier that despite the lobbying by the West, India will recover tax from Vodafone which means the telecom giant might have to legally challenge an imminent tax notice.