LONDON – The British telecommunications giant Vodafone said Tuesday that it had started legal proceedings against the Indian government over a proposed retroactive tax law that could cost the company more than $2 billion.
Vodafone, one of the largest international investors in India, said it had served the country’s government with a so-called notice of dispute, which is the initial step toward formal international arbitration.
The move comes after the Indian government proposed new legislation that would retroactively tax overseas transactions involving local assets. If the law is passed, it may make it more difficult for overseas companies to invest in the fast-growing economy.
The move comes after a tax-related ruling by the Supreme Court of India earlier this year that was in favor of Vodafone.
The local government had sought $2.2 billion in taxes related to Vodafone’s acquisition of the local mobile phone operations of Hutchison Whampoa, based in Hong Kong, for roughly $11 billion. Vodafone bought the assets in 2007.
Vodafone, the world’s largest mobile operator by revenue, had argued that the Indian tax authorities had no right to tax a transaction between two foreign entities. Even if tax were due, the company said it should be paid by the seller, not the buyer.
“Vodafone has asked the Indian government to abandon or suitably to amend the retrospective aspects of the proposed legislation as Vodafone would prefer to reach an amicable solution to this matter,” the company said in a statement. “If the Indian government is not willing to do so, Vodafone will take whatever steps are necessary to protect its shareholders’ interests.”
As part of these efforts, the telecommunications company said it had served the Indian government with a notice of dispute through a Dutch subsidiary. The move is the first step toward international arbitration, which would involve negotiations between India and the Netherlands, the company said. The legal proceedings may take up to two years.
A representative from the Indian government was not immediately available for comment.
Vodafone’s stock price was up 1.2 percent in afternoon trading in London.