(Adds details, background on Vodafone's Indian tax battle)
MUMBAI, Feb 16 (Reuters) - India's tax office has sentVodafone Group a reminder to pay $2 billion in taxes andthreatened the British telecoms group with seizure of localassets if it fails to do so, despite the long-running disputebeing the subject of an international arbitration process.
Prime Minister Narendra Modi's government has sought to movetowards a tax-friendly regime to boost foreign investment andreduce the number of outstanding tax disputes with multinationalfirms.
Vodafone, one of India's largest corporate investors, hasrepeatedly clashed with the authorities over taxes since itbought in 2007 CK Hutchison's local mobile business,Hutchison Essar. Initially Vodafone was held liable for payingcapital gains tax on the deal, even though it was the buyer.
In 2012 India's Supreme Court ruled that Vodafone was notliable for payment of any tax on the acquisition but the government then changed the law later that year to enable it totax such deals retrospectively, demanding more than $2 billionbe paid on the Hutchison deal.
In 2014 Vodafone then sought international arbitration ofthe dispute, which has still not been settled.
"We can confirm that we have received a tax reminder fromthe tax department that also references asset seizures in theevent of non-payment," a London-based spokesman for Vodafonesaid in a statement.
"In a week when Prime Minister Modi is promoting atax-friendly environment for foreign investors this seems acomplete disconnect between government and the tax department,"the Vodafone statement said.
A number of other multinational companies including RoyalDutch Shell Plc, IBM Corp, Microsoft Corp andHewlett-Packard Co have fallen foul of India's taxcollectors in recent years.
In most of the cases the tax department has charged thefirms with under-invoicing the value of products, services orshares sold to their parents and, therefore, lowering taxliabilities.
A spokeswoman for the Indian tax office declined to commenton the tax notice sent to Vodafone. (Reporting by Sumeet Chatterjee im Mumbai and Manoj Kumar inNew Delhi; Editing by Greg Mahlich)