VODAFONE HAS begun a legal battle with the Indian government over retrospective tax legislation included in the Indian Finance Bill 2012 that could cost the business more than $2bn (£1.2bn).
The claim, served by the group’s Dutch subsidiary Vodafone International, is the first step required before a decision can be given under the bilateral investment treaty (BIT) between India and the Netherlands.
The proposed legislation could reverse a $2.2bn legal victory for the telecoms giant won in January, which saw the Indian taxman repay Vodafone $500m after a five-year dispute.
The clash is rooted in Vodafone’s acquisition of Hutchison Whampoa’s Indian mobile assets for $11.2bn. The Indian authorities had argued the deal was tax-liable in India.
Legal amendments would allow India to start new proceedings against the company in what Vodafone describes as “violations of the international legal protections granted to Vodafone and other investors in India”.
In a statement on its website, Vodafone said: “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.
“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.”
Chancellor George Osborne has also waded into the row. A delegation to India, including Osborne and prime minister David Cameron, will look to promote stronger trade links, but it is believed Osborne will raise the ongoing tax dispute between Vodafone and India during the trip.
Speaking at the British High Commission in New Delhi, Osborne told the Financial Times: “We are concerned about the proposed budget measure; not just because of its impact on one company – Vodafone – but because we think it might damage the overall climate for investment in India.”
The chancellor’s comments follow a letter sent by seven business associations from the US, the UK, Canada, Japan and Hong Kong, to Indian prime minister Manmohan Singh challenging the country’s decision to introduce retroactive tax rules.
The associations warned that some companies had already begun to re-evaluate their investments and others could follow suit.