NEW DELHI: Phone giant Vodafone on Tuesday asked India's top court to stop the government from demanding penalty payments on a $2.5-billion tax bill and warned the row could discourage foreign investors.
India slapped the disputed $2.5-billion tax bill last October on Britain's Vodafone over its $11.1 billion dollar purchase four years ago of a 67-percent stake in Hong Kong-based Hutchison Whampoa Ltd's Indian mobile unit.
The Supreme Court petition, which a Vodafone spokesman said would be heard on Thursday, is the latest development in a long running battle with India's tax office that is being closely watched by foreign investors.
"The position being taken by the tax authorities is both unprecedented and also out of step with international taxation principles governing acquisitions, which are designed to encourage investment," Vodafone said in a statement.
"Seeking penalties on a 'test case' involving a major infrastructure investor highlights the unpredictable nature of India's taxation policy," Vodafone added.
The dispute is being scrutinised by international investors with experts saying the case could have implications for big-ticket purchases of Indian firms by other foreign companies.
The row comes as foreign direct investment in India plunged in the past year amid investor concern over corruption, bureaucratic delays and a lack of economic reform.
The penalty demand for the unpaid tax, received last month, "is only likely to raise further concerns amongst potential investors into India," Vodafone said.
Vodafone maintains Indian law did not require it to deduct tax on the deal because it took place in the Cayman Islands and both buyer and seller were foreign.
"Further, Vodafone was the acquirer and not the vendor and has made no gain on the transaction," the Vodafone spokesman noted.
The company's challenge to the tax bill is to be heard separately by the Supreme Court on July 19.
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