British telecommunications giant Vodafone Group plc won the arbitration case against the Government of India for a claim of Rs 22,100 crore in taxes using retrospective legislation.
An international arbitration tribunal ruled that India’s claim for past taxes violated fair treatment under a bilateral investment protection pact.
the finance Minister in a statement it said that it had just been informed that the award in the arbitration case invoked by Vodafone International Holding BV against the government of India has been approved.
“The government will study the award and all its aspects carefully in consultation with our advisers. After such consultations, the government will consider all options and make a decision on the further course of action, including legal recourse, before the appropriate forums.” He said.
The government’s liability will be limited to around 75 million rupees, 30 million rupees in cost and another 45 million rupees in tax refunds, sources with direct knowledge of the matter said.
Vodafone had challenged in arbitration court India’s use of 2012 legislation that gave it powers to retroactively tax deals such as the $ 11 billion acquisition of Vodafone of a 67 percent stake in the mobile phone business owned by Hutchison Whampoa in 2007.
It challenged the claim for Rs 7,990 crore in capital gains taxes (Rs 22,100 crore after including interest and penalties) under the Bilateral Investment Treaty between the Netherlands and India (BIT).
The sources said that the tax claim was on the UK-listed company and that the Vodafone company in India had no liability.
Vodafone merged its operations in India with billionaire Kumar Mangalam Birlaconglomerate, but the combined entity Vodafone Idea Ltd faces a bill of $ 7.8 billion in past legal fees.
The tax authorities had notified Vodafone International Holdings BV in September 2007 of its alleged failure to deduct withholding tax from the consideration paid to Hutchison Telecommunications International Ltd.
Vodafone challenged this in the Supreme Court, which annulled it in January 2012, saying that the transaction was not taxable in India and therefore the company was not required to withhold tax.
In May of that year, Parliament passed the Finance Act of 2012 which amended various provisions of the Income Tax Act of 1961 with retroactive effect to tax any gain on the transfer of shares in a non-Indian company that achieves a value substantial of the underlying Indian assets.
In January 2013, the company delivered a tax notice of Rs 14,200 crore after including interest on the principal amount.
A year later, Vodafone challenged the tax claim under the Dutch BIT.
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