The infamous retrospective tax battle over 20,000cr of alleged quotas may have come to an end with Vodafone International Holdings recording a major victory against the Indian Tax Department, in Arbitration. The Permanent Court of Arbitration in The Hague has held that the conduct of the Indian authorities violated the “fair and equitable” treatment ensured under the Bilateral Investment Treaty (BIT), signed between the Netherlands and India.
The Arbitral Tribunal held that it has jurisdiction to consider Vodafone’s claims regarding breach of the BIT between the two countries. The Tribunal also held that, given the facts of the case, Vodafone was entitled to protection under the BIT standards of “fair and equitable” treatment. Here, the Hague-based Tribunal held that the collection of a retroactive tax of Rs 20 billion by the Indian authorities violated the BIT.
Importantly, the Indian authorities have been ordered to “put an end to the conduct in question.” The court also warns that non-compliance “will compromise its international responsibility.”
The problem dates back to 2007, when Vodafone bought a 67 percent stake in Hutchison Essar for $ 11.1 billion. At the time, the Indian tax authorities had branded the structure of the multi-million dollar transaction as a tax evasion scheme and had imposed a demand of Rs 20 billion, including a fine. The issue saw litigation, which extended to the Supreme Court. And in 2012, the Supreme Court of India had annulled the tax lawsuit, ruling in favor of Vodafone.
Shortly after the SC’s verdict, then-Finance Minister Pranab Mukherjee submitted a draft amendment bill to Parliament, which included retrospective amendments dating back to 1962. These amendments, after being scrutinized by parliament, allowed the Tax department overturn the Supreme Court ruling in Favor of Vodafone and re-increase the tax bill to Rs 20 billion.
In April 2014, Vodafone International Holdings initiated arbitration proceedings under the Bilateral Investment Treaty between India and the Netherlands. Under this treaty, the Permanent Court of Arbitration in The Hague held hearings between the two parties.
Vodafone Idea has declined to comment on the matter.
Vodafone was represented in The Hague by DMD Advocates. Advocates for DMD issued a statement saying: “Vodafone finally got justice. Hopefully, this award ends all litigation on the subject. ”
