A pedestrian passes a store displaying an advertisement for the telecommunications company Vodafone in Mumbai. (AFP)
However, the government’s liability will be limited to about 75 million rupees, 30 million rupees in cost and another 45 million rupees in tax refunds, sources with direct knowledge of the matter said.
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British telecoms giant Vodafone Group plc won arbitration against the Indian government on Friday over a claim of Rs 22.1 billion 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 award is confidential, but Vodafone can confirm that the court has found it in favor of Vodafone,” Vodafone Group said in a statement. “We are studying the extensive documents and cannot comment further at this time.”
It was not immediately known whether the Indian government will abide by the arbitration award. 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.
“There is an erroneous impression that the government will have to repay 20 billion rupees due to the award in the arbitration case invoked by Vodafone International Holding BV. India has been asked to pay around 40 million rupees, i.e. 60% of the administrative cost of the international arbitration court, “ANI news agency quoted the sources.
“The remaining 40% of the cost would be borne by Vodafone. Furthermore, the Indian government may have to refund the tax collected, which is approximately Rs 45 million, only if the award is not appealed. Therefore, the total spending would be around 85 million rupees, “they added.
Vodafone had challenged in arbitration court India’s use of 2012 legislation that gave it powers to retroactively tax deals such as Vodafone’s $ 11 billion acquisition of a 67% stake in Hutchison’s mobile phone business. Whampoa in 2007. I challenged the claim for Rs 7,990 crore in capital gains taxes (Rs 22,100 crore after including interest and penalties) under the Netherlands-India Bilateral Investment Treaty (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 conglomerate Kumar Mangalam Birla, but the combined entity Vodafone Idea Ltd faces a bill of $ 7.8 billion in past legal fees.
In September 2007, the tax authorities notified Vodafone International Holdings BV (VIHBV) 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 in January 2012 canceled it. 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. Sources said the company in April 2014 delivered the arbitration notice after the out-of-court dispute resolution talks failed.
In February 2016, the tax department sent a notice of claim for Rs 22.1 billion, including interest earned from the date of the original claim. Vodafone has always maintained that there is no liability and that it will “continue to vigorously defend any allegation that HIVBV or Vodafone India Ltd are subject to tax in connection with the transaction with Hutchison and will continue to exercise all rights to seek redress.”
In addition to Vodafone, the Indian government also used retrospective tax law to seek Rs 10,247 crore from British oil explorer Cairn Energy Plc during a 2006 reorganization of its Indian businesses.
(With inputs from agencies)
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