Tax levvied on Vodafone inconsistent with India-Dutch tax treaty, government claims.

The Dutch authorities have filed a formal application to the Indian finance ministry under the mutual agreement procedure in relation to the move by Indian authorities to have Vodafone International Holdings BV, a unit of Vodafone Group PLC, pay tax on its 2007 acquisition of a majority stake in Hutchison Essar Ltd., DNA Money reported on its website Friday, citing a government source familiar with the development.

The application states that the obligation the Indian tax department is seeking to impose on Vodafone is inconsistent with the provisions of the India-Dutch tax treaty, the website reported the source as saying.

The mutual agreement procedure entitles the competent authority of a particular country to take up tax disputes on behalf of a taxpayer in the country where the taxpayer is facing tax litigation, the website reported.

However, the website reported tax department sources as saying Vodafone couldn't use the mutual agreement procedure route, as the case relates to the Indian income tax act and didn't involve double taxation.