The government has said that the UK-based telecom major Vodafone cannot be granted tax exemption under the bilateral investment promotion and protection agreement (BIPA) between India and the Netherlands.
The inter-ministerial group (IMG) to look into Vodafone’s notice threatening international arbitration in the R20,000-crore tax case, came to this conclusion in its meeting on Friday. Officials of finance ministry, law, external affairs and telecom attended the meeting.
According to official sources, Article 4 of the BIPA does not state anything on tax exemption.
The treaty provision ?in respect of grant of national treatment and most-favoured nation treatment shall not apply in respect of any international agreement or arrangement relating wholly or mainly to taxation.?
Last month, Vodafone served a notice of dispute against the Indian government which threatens to drag it to international arbitration over a new retrospective tax proposal in the Finance Bill, 2012. The notice was served by the UK-based group?s Dutch subsidiary Vodafone International Holdings.
The tax case stemmed from Vodafone’s 2007 acquisition of Hutchison Whampoa’s Indian business for $10.7 billion.
The revenue department had argued that the transaction was liable to be taxed in India for capital gains, but it lost the case to Vodafone in the Supreme Court.
In the Union Budget announced in March, the government announced a proposal to amend the Income Tax Act to bring overseas deals such as Vodafone’s purchase of Hutchison under tax net and the Lok Sabha approved this change on Tuesday.