In the wake of the finance ministry’s proposed changes in the Union Budget in the country's tax rules retrospectively from 1962 which is being seen as an attempt to overrule the Supreme Court’s verdict on Vodafone-Hutchison deal, the government has clarified that it will go by what the parliament says.
"My understanding is that the Finance Bill is coming in the first week of May and I have to go by what Parliament says," Law Minister Salman Khurshid told reporters here.
"When you receive a notice, you look at it, you analyse it. Finance Minister (Mukherjee) has to take a call," Khurshid said when asked about the notice.
Vodafone had served the Indian government with a Notice of Dispute regarding proposals in the Indian Finance Bill 2012 that violate the international legal protections granted to Vodafone and other international investors in India.
Vodafone asked the Indian government to abandon or suitably to amend the retrospective aspects of the proposed legislation as Vodafone would prefer to reach an amicable solution to this matter.
The finance ministry last month proposed in the Union Budget some changes in the country's tax rules retrospectively from 1962. This means transactions that took place outside India are taxable. This includes the $11.08 billion (around Rs 55,735 crore today) Vodafone-Hutchison deal.
The amendment which seemed to be an attempt to overrule the Supreme Court’s verdict on Vodafone-Hutchison deal will be applicable to the assessment year 1962-63. This will have an impact on many foreign investments which will now be open to taxation.
The move assumed significance as the government has filed a review petition in SC on this deal and it will have to be reconsidered in the light of the changes in tax laws.
The Notice, served by the group’s Dutch subsidiary Vodafone International Holdings BV (“VIHBV”), is the first step required prior to the commencement of international arbitration under the Bilateral Investment Treaty (“BIT”) between India and the Netherlands. VIHBV is a company constituted under the laws of the Netherlands and therefore an investor as defined under Article 1(d) of the Treaty.
“The dispute arises from the retrospective tax legislation proposed by the Indian government which, if enacted, would have serious consequences for a wide range of Indian and international businesses, as well as direct and negative consequences for Vodafone”, it said in a statement.
Vodafone says that it 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.
“The Indian government’s retrospective tax proposals have also raised significant and widespread concern within India and internationally and have been criticised by businesses and industry bodies representing more than 250,000 companies across the US, Europe and Asia”, it said.