As per the Indian government, the said tax liability of Vodafone in India arose from its purchase of Hutch Essar in 2007 for $11 billion, as it involved cross-border transfer of Indian assets.
India had earlier withdrawn a conciliation offer to Vodafone on the issue saying the telecom major had initiated arbitration without waiting for the Income Tax Appellate Tribunal decision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. New Delhi was seen reluctant to engage in arbitration and its decision to appoint an arbitrator comes a day ahead of Vodafone possibly approaching the International Court of Justice (ICJ) in the Hague, Netherlands, citing Indias unwillingness to engage in arbitration.
Under law, Netherlands-based Vodafone International Holdings, which issued arbitration notice to India in April, could have approached Peter Tomka, president of the ICJ, to make necessary appointments if India failed to appoint an arbitrator by June 17.
While India wants the arbitration venue to be India, Vodafone wants it to be in London.
The UPA government wanted the transfer pricing dispute to be settled first so that conciliation talks with Vodafone on the Hutchison Essar deal could go ahead. In June last year, the Cabinet under then Prime Minister Manmohan Singh had approved the conciliation with Vodafone to resolve the capital gains tax dispute related to its 2007 purchase of Hutch Essar for $11 billion.
While the basic tax demand was Rs 7,990 crore, the total outstanding, including interest and penalty, is estimated to have risen to Rs 20,000 crore. The arbitration notice, however, led to the withdrawal of the conciliation offer by the government last month.
Government sources had told FE earlier that the tax department had prepared a response to Vodafones 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.