By Penny MacRae (AFP) –
NEW DELHI — Vodafone on Tuesday threatened to
take India to international arbitration over proposed retroactive tax
legislation that could cost the British mobile phone giant over $2
billion.
Vodafone, stepping up its battle against the tax plan which
it called a violation of foreign investors' rights, said it had served
the Indian government with a "notice of dispute" in a first step toward
international arbitration.
It said the Indian legislation was a bid
to bypass a ruling by the country's Supreme Court dismissing a
$2.2-billion tax bill imposed on the firm over its 2007 takeover of Hong
Kong-based Hutchison Whampoa's Indian mobile unit.
The legislation
to retroactively tax overseas mergers would "countermand" the court
verdict and "violates international legal protections granted to
Vodafone and other international investors in India", Vodafone said in a
statement.
Vodafone, India's biggest foreign corporate investor,
said the notice was the first move before international arbitration
under an investment treaty between India and the Netherlands.
The
notice was served by Vodafone's Dutch subsidiary as the takeover deal
was struck between it and a Cayman Islands-based company that held
Hutchison Whampoa's India assets.
India's finance ministry declined to comment on the move.
The cash-strapped Indian government had been widely expected to plug merger tax loopholes.
But
the retrospective nature of the legislation has stirred an
international outcry at a time when India urgently needs big-ticket
foreign investments to upgrade its dilapidated infrastructure and spur
slowing economic growth.
New Delhi's legislation, announced last
month, would allow India to tax the sale of Indian assets, even if
seller and buyer are foreign, back to 1962.
This month, seven global
business groups warned the proposal was "prompting a widespread
reconsideration of the costs and benefits of investing in India".
Gross
foreign direct investment in India already fell by a quarter to $20.3
billion in the most recent fiscal year from a year earlier.
Vodafone
said it wanted an "amicable solution" and had asked India to abandon the
retrospective aspects of the proposed legislation.
Otherwise
"Vodafone will take whatever steps are necessary to protect its
shareholders' interests, including commencing investment treaty
arbitration proceedings", the company said.
India contends Vodafone
should have withheld the amount the seller, Hutchison, would have owed
in capital gains tax when it sold the Indian unit for $10.7 billion.
Vodafone
successfully argued in the Supreme Court the deal was exempt from any
tax because the sale took place abroad and both buyer and seller were
from beyond India's borders. It also noted it was the purchaser and made
no gain.
Aside from Vodaf