UK telecom major Vodafone Group Plc on Friday won an international arbitration against India over retrospective tax demand of ₹20,000 crore. The Permanent Court of Arbitration in The Hague ruled that conduct of Income Tax Department is in breach of ‘fair and equitable’ treatment.
Vodafone was represented at The Hague by DMD Advocates.
The tribunal ruled that the Indian government’s imposition of a tax liability on Vodafone is in breach of the investment treaty agreement between India and the Netherlands, Reuters reported while quoting a source.
The tribunal, in its ruling, said the government must cease seeking the dues from Vodafone and should also pay 4.3 million pounds ($5.47 million) to the company as partial compensation for its legal costs, the source said.
“The Government will be studying the award and all its aspects carefully in consultation with our counsels. After such consultations, the Government will consider all options and take a decision on further course of action including legal remedies before appropriate fora,” said the Ministry of Finance.
Sumit Mangal, Partner, L&L Partners said: “This is a landmark victory for Vodafone and will set a good precedent for others to take international tax issues to international arbitration. It also resolves the controversy that tax issues could be contested under Investment Treaties or Bilateral Investment Promotion and Investment Agreement (BIPA) entered into by India with other countries. Arbitral Tribunal has held that investment of Vodafone in India was not accorded fair and equitable treatment as was guaranteed under India-Netherlands BIPA. In addition to granting relief to Vodafone in directing Indian Government to not recover the disputed tax dues from Vodafone, it also directed Indian Government to reimburse legal costs to Vodafone.”
Spurred by the news, on Friday Vodafone Idea’s scrip on BSE closed 12% higher at ₹10.20.
The tax dispute stems from Vodafone’s acquisition of the Indian mobile assets from Hutchison Whampoa in 2007. The government said Vodafone was liable to pay taxes on the acquisition, which the company contested.
A tax demand of ₹11,000 crore was raised by UPA-II government related to Vodafone’s $11 billion acquisition of Hutchison Telecom stake.
The government had said then, that the Hutchison-Vodafone deal was liable for tax deduction at source (TDS) under the Income Tax (IT) Act, and since Vodafone had not deducted the tax at source, the government raised the demand, which has expanded to ₹20,000 crore including interest and penalties.
While the Supreme Court subsequently quashed the demand on January 20, 2012, the government amended its law retrospectively, putting the liability back on Vodafone Group.
In April 2014, Vodafone initiated arbitration proceedings against India.
India is entangled in more than a dozen international arbitration cases against companies, including Cairn Energy, over retrospective tax claims and cancellation of contracts. The exchequer could end up paying billions of dollars in damages if it loses.