(Updates with Chidambaram’s comment in second paragraph.)
May 8 (Bloomberg) -- Vodafone Group Plc has started international arbitration to resolve a long-running $2.4 billion tax dispute with the Indian government over a seven-year-old acquisition.
The company asked for the dispute to be decided by an international court in April, Newbury, England-based Vodafone said yesterday. The talks may commence by the end of 2014. India will defend against the arbitration notice, Finance Minister Palaniappan Chidambaram said at a briefing in New Delhi today.
The quarrel goes back to Vodafone’s 2007 purchase of Hutchison Whampoa Ltd.’s Indian assets. Vodafone has said it didn’t owe taxes because the acquisition of Hong Kong-based Hutchison’s business was between two international companies, with the target asset registered in the Cayman Islands. India’s government responded in 2012 with a law enabling it to retroactively tax cross-border deals going back to 1962.
“Since Vodafone and the Indian government have been unable to find an amicable means of resolving the dispute, Vodafone has commenced an international investment arbitration as a way to achieve resolution,” Vodafone said in a statement.
As of January 2013, the Indian tax authority has claimed Vodafone owes 142 billion rupees ($2.4 billion) including interest and penalties, the company said in its last annual report.
Still, Vodafone said it hasn’t received any formal demand for taxation following the government’s Finance Act 2012, which counteracted an India Supreme Court ruling that would have freed Vodafone from the obligation.
Vodafone isn’t the only European company to run afoul of India’s tax regime. Nokia Oyj was forced to abandon the transfer of a Chennai plant to Microsoft Corp. in April, part of the software company’s acquisition of Nokia’s handset unit, because of a tax standoff.
Elections, under way this month, may bring a more favorable climate to business. India’s main opposition party, Narendra Modi’s Bharatiya Janata Party, has promised to resolve tax disputes if it wins the elections, the party’s former finance minister Jaswant Singh said in a February interview.
Last month, Vodafone agreed to buy out Piramal Enterprises Ltd.’s stake in its Indian unit for about $1.5 billion, winning full control of its biggest market by customers.
Vodafone shares fell 0.5 percent to 225.55 pence as of 10:48 a.m. in London. The carrier has a market value of about 60 billion pounds ($102 billion).
--With assistance from Abhijit Roy Chowdhury in New Delhi.