The ongoing tax dispute between the Indian government and Vodafone may have wider implications as the Canadian government delays signing a foreign investment protection treaty with the country.
Vodafone has said that it will take the dispute to International Arbitration under the terms of a treaty the Indian government signed with the Netherlands if the tax dispute is not resolved. As such, the Indian government has put all negotiations for similar treaties with other countries on hold.
The Indian tax department lost its dispute with Vodafone when the Supreme Court ruled that Vodafone had obeyed the law when it took over Hutchison's 66% stake in the local mobile network. The Indian government then retrospectively changed the law to make Vodafone liable for the US$2.2 billion tax demand, in a move which alarmed foreign investors.
The Canadian Prime Minister, Stephen Harper is due to visit India this week and was expected to sign a number of trade agreements.
Citing the Canadian High Commissioner, Stewart Beck, the Reuters news agency said that the Vodafone dispute had put some of these treaties on hold while the Indian government considers its options.
"I imagine we'll have agreements perhaps in the next year," Beck told reporters traveling with Harper. "I would say this is going to take more time (than this week)," he said of the Canadian-Indian investment protection negotiations, which have been under way for eight years.