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May 08, 2012, 11.33 AM IST | Source: CNBC-TV18

Tax Tussle: Will Vodafone hasten international arbitration?

Sources close to Vodafone have told CNBC-TV18 that the company may decide to hasten its international arbitration process.

The Finance Minister’s opening remarks on the Finance Bill have faded any hopes that Vodafone may have had of the government deciding to step back and not make a law that taxes it for the 2007 Hutchison transaction. Sources close to Vodafone have told CNBC-TV18 that not only is the company not seeking a penalty and interest waiver, it may well decide to hasten the international arbitration process.

A penalty and interest waiver has the potential to halve the USD 5 billion tax bill the government has draw on the telecom major. Sources in the Finance Ministry had earlier said they could look at this option if Vodafone formally sought such a waiver.

On hastening the international arbitration process, sources close to Vodafone explain the passage of this retrospective tax law would leave no scope for reconciliation and would in fact frustrate any such attempts. In the notice served to the Indian government for its intention of international arbitration, Vodafone had provided a window for reconciliation.

Sources told CNBC-TV18, ‘by passing this law, the government is making it clear it is not interested in any form of reconciliation. Therefore, what could be the purpose of waiting for six months? Vodafone would have no option but to quickly seek expropriation under the bilateral treaty between India and Netherlands.’

In the Hutchison transaction, the Vodafone investee company was based out of Netherlands.

Sources add Vodafone may also not attempt to challenge constitutional validity of this law. The only hope left is the FM’s closing remarks on the debate tomorrow.

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