Vodafone Group Plc won a lengthy tax battle with the Indian government, which had demanded that the British telecom operator pay Rs 20 billion in back taxes, interest and penalties related to the 2007 purchase of Hutchison Whampoa’s operations in India.
The Permanent Court of Arbitration in The Hague held that any attempt by India to enforce the tax claim would be in violation of the country’s international law obligations, Vodafone Group said in a statement on Friday. “This was a unanimous decision, including the Indian appointed referee Rodrigo Oreamuno,” the statement said.
The tax dispute cast a shadow over Vodafone Group’s operations in the intensely competitive Indian telecommunications market, where it had to write off billions of dollars in investments.
Shares of the Indian unit of telecommunications company Vodafone Idea Ltd rose 13.6% after the arbitration court ruling. Investors in the Indian unit hope that the order will encourage the British company to inject additional capital into its operations in India. Vodafone Group has clearly stated that it does not intend to make further investments in the Indian business.
“If the judgment had been against Vodafone, it would have had to pay $ 2 billion, which is equal to the value of the telecommunications company’s stake in Vodafone Idea,” said a telecommunications analyst, requesting anonymity. Vodafone owns 45.1% of Vodafone Idea, India’s third largest mobile operator.
The arbitration court ruled that India’s tax department’s claim to Vodafone violates the India-Netherlands bilateral investment treaty (BIT).
“Any further challenge to the order, if the tax department decides to do so, it has to go to Singapore’s highest court (jurisdiction),” said a person with direct knowledge of the matter, requesting anonymity.
Vodafone was represented by senior attorney Harish Salve and a team from DMD Advocates.
In response to the ruling, the Indian government said it will study the arbitration award and decide on the “further course of action” after legal and other consultations.
Another person familiar with the matter said that “the government of India may have to refund the tax collected, which is approximately 45 million rupees, if it does not appeal against the award.”
The dispute arose when the government amended the Finance Act in 2012, allowing it to retroactively tax any gains on the transfer of shares. Following the amendment, Rs 20 billion was demanded from Vodafone in back taxes on capital gains, interest and penalties. The idea was to tax the companies for any transfer of shares involving an underlying Indian asset.
The amendment overturned a Supreme Court ruling that was in favor of the company. Vodafone then challenged India’s amendment to the law, which allowed the country to retroactively tax the deals, including its $ 10.9 billion acquisition of a 67% stake in Hutchison Essar.
“This victory for Vodafone was expected, considering the widespread condemnation India faced for its decision to retrospectively amend the law to tax Vodafone, overturning a favorable Supreme Court ruling against the tax office,” said Amit Maheshwari, partner at Ashok Maheshwari. and Associates. .
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