Rejecting Vodafone’s claims, the Income-Tax Department has written to the British telecom major saying that the Bilateral Investment Promotion and Protection Agreement (BIPA) between India and the Netherlands does not cover taxation issues, government sources said.

Last month, Vodafone had written to the Finance Ministry stating the taxation dispute in respect of transfer pricing case between its call centre Vodafone India Services (VISPL) and Vodafone International Holdings BV (VIHBV) came under the India-Netherlands BIPA.

“The VISPL transfer pricing dispute on the alleged options transfer is entirely included within the dispute about tax on the Hutchison Essar sale, and, as such, is included in VIHBV’s notices of Bilateral Investment Treaty claims against the Government of India...In seeking to tax the full value of the Hutchison Essar sale and then to claim tax on an alleged transfer of options in the Hutchison Essar sale, the Government is seeking to tax one event twice,” the telecom major had said.

Vodafone had sent a notice to the government after the Union Cabinet turned down Revenue Department’s proposal seeking to withdraw conciliation offer.

This was after Vodafone pressed for including transfer pricing case in its ambit and carrying negotiations only under United Nations Commission on International Trade Law (UNCITRAL).

Tax notice

The IT Department has served a Rs.20,000-crore tax notice on Vodafone regarding its acquisition of Hong Kong firm Hutchison Whampoa’s stake in Hutchison Essar in 2007. In June last year, the government had a Finance Ministry proposal to go in for conciliation with Vodafone to resolve the tax dispute. However, the talks failed after Vodafone issued a supp- lementary notice to the government, invoking the BIPA and demanded that a separate transfer pricing case be clubbed with the capital gains tax matter.

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