Dutch authorities have filed a formal application to the Indian finance ministry stating that the tax bill local authorities are looking to levy on Vodafone International is inconsistent with the provisions of the Indian-Dutch tax treaty.
The application…
Dutch authorities have filed a formal application to the Indian finance ministry stating that the tax bill local authorities are looking to levy on Vodafone International is inconsistent with the provisions of the Indian-Dutch tax treaty.
The application was reportedly filed under the mutual agreement procedure (MAP), which allows the competent authority of a country to take up tax disputes abroad on behalf of a taxpayer, according to the DNA Money website.
A few months ago, the Bombay High Court ruled that tax authorities were allowed to seek a tax bill from Vodafone International, a Dutch subsidiary of Vodafone, on the US$11.2bn Essar acquisition in 2007.
Before that, the Indian Income Tax department had argued that the deal not only involved the transfer of shares but also a transfer of rights such as management control, brands and rights to conduct business in India – pointing towards an ‘Indian nexus’, allowing the country to claim tax.
Vodafone rejected those arguments, saying that because India has a double taxation treaty with Mauritius, investments made from there into India are not subject to tax. Questions were also asked about why the Dutch company, as a buyer, should be liable to a tax since it made no gain.
The Supreme Court of India has set the final appeal hearing on the whole case for 24 February. Some experts in the industry fear that if the Supreme Court decides to go ahead with the US$2.5bn tax bill, other foreign firms might be deterred from investing in the country.
Besides Vodafone, there are currently four other cross-border deals under Indian authorities’ scrutiny, according to media reports citing junior finance minister S. S. Palanimanickam.
Another of these in the telecoms sector is New Cingular Wireless Services partnering with AT&T Mauritius to buy a stake in Indian cellco Idea Cellular.
The companies could not be reached to comment the information but, in mid-October, Idea issued a notice to the Mumbai stock exchange saying it regularly considers business proposals.
