The Indian government may face legal arbitration from Vodafone if its proposed M&A tax is approved. The tax would apply retroactively – meaning that Vodafone would be faced with a substantial tax payment for its 2007 purchase of Hutchison for US$10.7 billion. Reportedly, the change would enable India to tax all sales of Indian assets as far back as 1962, even if neither of the parties involved is Indian.
Earlier this year, Vodafone avoided paying the US$2.2 billion in taxes claimed by the Indian government in relation to this acquisition following a decision by the country’s Supreme Court. If the new tax is introduced, this decision could effectively be nullified.
Vodafone argues that the proposed tax – outlined in the Indian Finance Bill 2012 - “violate[s] the international legal protections granted to Vodafone and other international investors in India.” It has issued the government a Notice of Dispute via a subsidiary, Vodafone International Holdings BV (VIHBV).
The operator said in a statement: “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”, adding that the plans had been “criticised by businesses and industry bodies representing more than 250,000 companies across the US, Europe and Asia.”
While Vodafone has stated that it wishes to find an “amicable solution to this matter,” it added that it was prepared to “take whatever steps are necessary to protect its shareholders’ interests, including commencing investment treaty arbitration proceedings under the BIT against the Indian government.”