Vodafone wins Rs.20,000 Crore retrospective tax case against the Indian Government in the Permanent Court of Arbitration at Hague, Netherland. The Court ruled that the Government’s demand is a breach of the investment treaty agreement signed between India and the Netherland. The Income Tax Department of India was demanding a sum of Rs. 12,000 Crore from the telecom giant due to its acquisition of the Indian assets of Hutchison Whampoa in 2007. Though the agreement was done between the companies outside India but the assets are in India, hence Vodafone was liable to deduce tax at the source with respect to the consideration paid to Hutch.
The Apex Court of India in 2012 passed the judgment in favor of the telecom giant, reversing the judgment of the Bombay High Court. In order to overcome the odds, the Indian Government amended the Income Tax Act, 1961 in 2012 with retrospective effect. Due to amendments, there was a new tax demand, the telecom giant then moved to the arbitrational tribunal in the year 2014, invoking the India-Netherland bilateral investment treaty of 2013.
The tribunal while ruling in favor of Vodafone said to the Indian Government that they must cease seeking dues from the company and also said to pay the telecom giant a sum of Rs. 40 Crore as compensation towards the legal costs.
Vodafone in a statement said “The tribunal held that any attempt by India to enforce the tax demand would be a violation of India’s international law obligations. Vodafone further added, “The tribunal held that any attempt by India to enforce the tax demand would be a violation of India’s international law obligations”. Anuradha Dutt, Senior Partner at DMD Advocates, an Indian law firm representing the telecom giant said “Vodafone has finally got justice first from the Indian Supreme Court and now from an international arbitral tribunal”.
“After such consultations, the government will consider all options and make a decision on the further course of action including legal remedies,” the Indian Finance Ministry said in a statement. India’s finance minister further said that it will carefully study the award, together with its lawyers.
India has dozens of such cases against different Companies. To reduce such future arbitration claims, the Indian Government has ended such agreements with over 50 countries and is working on a new piece of legislation to protect the foreign investors by offering them relief from possible policy changes even if it upholds the right to tax them.
