The Inter-Ministerial Group (IMG) which was constituted by the government to respond to the arbitration notice of Vodafone today held the view that the issue of taxation does not fall in the ambit of the Bilateral Investment Protection Agreement (BIPA).
"Taxation does not come under BIPA. Money for deal came from over 20 companies (which are subsidiaries of Vodafone) ... We will meet next week again," said an official after attending the first meeting of the IMG.
The government had set up the IMG to firm up India's respond to the notice given by the British telecom giant in the tax case. The group, which is headed by Finance Secretary R.S. Gujral, include representatives of ministries of external affairs, telecom, law and revenue.
According to an official present at the meeting, "it was a preliminary meeting. BIPA provisions were read out". The Dutch subsidiary of UK-based telecom major Vodafone had last month served a notice on the Indian government invoking BIPA between India and the Netherlands and threatened international arbitration in the tax case.
The issue pertains to the amendment in Income Tax Act with retrospective effect, which would bring Vodafone-type deals under the tax net. The amendments to the I-T Act, which were approved by the Lok Sabha earlier in the week, would neutralise the victory of Vodafone in the tax case and the company, according to estimates, would be liable to pay about Rs 20,300 crore as tax, penalty and interest.
The UK-based telecom major had acquired Hutchison's stake in Hutchison Essar Ltd for USD 11.2 billion in 2007.
The tax dispute arose as the Vodafone did not deduct tax (TDS) while making payment to Hutchison. Vodafone had earlier won the tax case in Supreme Court which overturned the judgement of Bombay High Court which was against the company.
Finance Ministry official had already questioned the decision of the British telecom major to invoke India- Netherlands investment protection treaty, saying the multi billion dollar deal was signed in Cayman Islands.