Vodafone Served Notice Upon Indian Government Over Retrospective Taxation Issue

The recent Vodafone tax case has become a bone of contention between Vodafone and Indian government. Vodafone has been maintaining that imposing a retrospective taxation liability upon it would be counter productive for the foreign direct investment (FDI) in India.

In the meantime, the Indian government has recently released the consolidated FDI policy of India 2012. It aims at strengthening the FDI regime of India. However, mere formulating a FDI policy is not sufficient. Indian government must also ensure that the FDI policies and norms are clear, unambiguous and transparent. At the same time, Indian government must also maintain a balance between FDI in India, sovereignty and international arbitration mandates.

In the latest development in Vodafone taxation issue, Vodafone has served a notice on the Indian government on its proposal to impose a retrospective tax liability. The notice has been served upon the Prime Minister’s Office, Finance Minister, Law and Justice and Communications and IT Ministries as well.

The notice alleges that the proposed Finance Bill, 2012, with its retrospective nature, violates international legal protections granted to international investors. The notice has been served by Vodafone’s Dutch subsidiary and is the first step required prior to commencement of international arbitration under the Bilateral Investment Treaty (BIT) between India and the Netherlands.

Vodafone has been contending that under the treaty the Indian government is liable to accord fair and equitable treatment to investors, provide security, not breach the legitimate expectations of investors in making investments and not deny justice or breach previously provided assurances. Let us see how Indian government would react to the same.