India's Income Tax authorities have slapped a tax demand of about USD two billion on Vodafone's over USD 11 billion deal to acquire Hutchison's stake in Hutchison-Essar (now Vodafone-Essar) in 2007.

In an interview to NDTV, Vodafone India CEO Marten Pieters had hinted that the company may pay the tax to end the dispute with the authorities.

"...In the end we are businessmen, if there would be a good compromise we would probably, I guess, Vodafone group, would be willing to accept it," Pieters had said.

But the Vodafone Group's head office today issued a statement saying: "Vodafone Group's position has not changed with regard to the tax case and we continue to believe that there is no tax to pay on this transaction....Vodafone will continue to defend its position vigorously and will look forward to the matter being reviewed in full by the Supreme Court on July 19."

It said the USD 2 billion-tax demand by the Indian authorities was "contrary to international taxation principles".

"The law is clear and India has not sought to tax such transactions before. To do so would be contrary to international taxation principles, which are specifically designed to encourage foreign investment and eliminate barriers to trade," the statement added.

The company has already deposited Rs 2,500 in cash and a bank guarantee of Rs 8,500 crore following the orders of the Supreme Court.

Pieters had said that such a move of taxing the deal would have a backlash on Indian companies doing similar mergers and acquisitions overseas, because "in retaliation, foreign governments may penalise them."