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BIT Notice: Desperate Measure or Trump Card?

Published on Sat, Apr 21,2012 | 10:51, Updated at Sat, Apr 21 at 11:24Source : |   Watch Video :

The twists and turns in Vodafone's battle against the Indian tax department never cease to amaze. This week we have devoted an entire show to Vodafone because this battle is not just about an interpretation of the income tax act. It's become a symbolic one. For those in favour of Vodafone it is about respecting rule of law. For those against it is about denying India its rightful revenue. Patriotic fervour aside we're sticking to the facts amid the legal options facing Vodafone.

So this week we ask: Investment treaty, tax treaty, constitutional validity of retroactive amendments...does any road lead Vodafone to a no-tax destination?

Let's start first with investment treaty.  This week, Vodafone put the government of India on notice - asking it to withdraw the retroactive tax proposals or face arbitration under the Netherlands bilateral investment treaty.

Payaswini Upadhyay asks the experts if this new play by Vodafone is a desperate measure or trump card?

After 5 years of court battles, Vodafone finally tasted victory in February this year. But it was short-lived. One month later, the finance minister proposed a series of retroactive amendments that will bring Vodafone's purchase of hutch Essar to tax. With 4 billion dollars at stake, Vodafone turned to the India - Netherlands bilateral investment treaty. This week it put the government on notice – asking it to withdraw the retroactive amendments or face treaty arbitration.  The move has raised 3 key questions

First, Vodafone's investment in India is indirect - via a Cayman island company. Would the treaty apply in such a case?

Dipen Sabharwal
Partner, White & Case 
"The definition of investor and investment is extremely broad- both in investment treaty arbitration context generally and also in the specific case of the Netherlands-India Bilateral Investment Treaty. So, for eg, it covers rights emerging from shares or any other ownership/interest in companies and it also covers indirect investments through holding companies. With such a very broad definition, all investments coming into India - directly or indirectly - through Netherlands in an Indian asset would be an investment."

The second question - can an investment treaty apply to a tax dispute



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