Vodafone Serves Notice on Indian Government
WHILE everyone knew that, immediately after the ‘Finance Bill' 2012 is enacted, Vodafone would challenge the retrospective levy of Income Tax in the Supreme Court, Vodafone yesterday sprang a surprise.
Vodafone informed the London Stock Exchange yesterday that it has taken a different route, maybe as the first option.
Vodafone has yesterday served the Indian government with a Notice of Dispute ("Notice") regarding proposals in the Indian Finance Bill 2012 that violate the international legal protections granted to Vodafone and other international investors in India.
"The Notice, served by the group's Dutch subsidiary Vodafone International Holdings BV ("VIHBV")", according to Vodafone, "is the first step required prior to the commencement of international arbitration under the Bilateral Investment Treaty ("BIT") between India and the Netherlands. VIHBV is a company constituted under the laws of the Netherlands and therefore an investor as defined under Article 1(d) of the Treaty."
Vodafone says,
The dispute arises from the retrospective tax legislation proposed by the Indian government, which, if enacted, would have serious consequences for a wide range of Indian and international businesses, as well as direct and negative consequences for Vodafone. The proposed legislation would also countermand the verdict of the Indian Supreme Court in January 2012, which ruled that Vodafone had no liability to account for withholding tax on its acquisition of indirect interests in Hutchison Essar Limited in 2007.
Under the BIT, the Indian government is obliged, among other things, to:
accord fair and equitable treatment to investors;
provide full protection and security;
not breach the legitimate expectations of investors in making investments;
not deny justice or breach previously provided assurances; and
not take steps to indirectly expropriate the investment.
Vodafone believes that the retrospective tax proposals amount to a denial of justice and a breach of the Indian government's obligations under the BIT to accord fair and equitable treatment to investors.
The Indian government's retrospective tax proposals have also raised significant and widespread concern within India and internationally and have been criticised by businesses and industry bodies representing more than 250,000 companies across the US, Europe and Asia.
Vodafone has asked the Indian government to abandon or suitably to amend the retrospective aspects of the proposed legislation, as Vodafone would prefer to reach an amicable solution to this matter. However, if the Indian government is not willing to do so, Vodafone will take whatever steps are necessary to protect its shareholders' interests, including commencing ‘investment treaty arbitration proceedings' under the BIT against the Indian Government.
Though the Indian Supreme Court has emphatically held in several cases that the Parliament has the power to make retrospective legislation, this new twist of a notice under the Bilateral Investment Treaty, has added a new dimension to the case. Vodafone is not going to simply hand over a cheque for Rs. 12,000 Crores to the Indian Government on a platter, but what is more interesting is Vodafone's assertion that it prefers an amicable solution. What is amicable solution? Will they pay half the disputed amount? Interesting days ahead indeed!