India's tax dispute with Vodafone Plc regarding its purchase of Hutch Essar seven years ago is likely to reach the International Court of Justice (ICJ) in the Hague, Netherlands a few weeks from now, sources privy to the matter said, adding this would be an unprecedented development in the history of the country's tax administration.
The revenue department reckons Vodafone will approach ICJ to put pressure on India to agree for arbitration to settle the roughly Rs 20,000-crore tax dispute arising from Vodafone’s purchase of Hutch Essar in 2007 for $11 billion.
The sources said the department has prepared a response to Vodafone’s notice of arbitration, explaining that taxation is not a subject on which India is bound to provide ‘fair and equitable’ treatment under Article 4 of the India-Netherlands Bilateral Investment Protection Agreement that speaks of ‘national treatment and most favoured nation treatment’ for foreign investors.
Under law, Netherlands-based Vodafone International Holdings, which issued arbitration notice to India in April, can approach Judge Peter Tomka, president of the ICJ to make necessary appointments if India does not appoint an arbitrator by June 17. India, as reported by FE earlier, does not intend to appoint arbitrators for the dispute.
Outgoing finance minister P Chidambaram said on May 12 that Vodafone had initiated arbitration against the Indian government without waiting for the Income Tax Appellate Tribunal decision on another transfer pricing dispute that was seen as a hurdle to engaging in conciliation talks.
“Once the Cabinet clears the response (to Vodafone's arbitration notice), we shall communicate it to them,” said a person privy to the development, adding, the matter will be put up before the finance minister in the Narendra Modi government, after he assumes office.
Given the hefty tax demands received by multinationals operating in India – mostly in terms of transfer pricing adjustments but a clutch of them being regarding cross-border deals involving Indian assets – the BJP's election manifesto, it may be noted, has iterated the need for tax regime non-adversarial to investors.
The International Court of Justice, a UN arm, has been adjudicating mainly on issues of sovereignty and territorial disputes, interpretation of treaties and legality of use of force by one state on another.
On April 24, Marshall Islands made news by filing lawsuits at the Hague against India and 8 other nuclear armed nations including the US and the UK on issues relating to nuclear disarmament.