A court ruled that the tax lawsuit violated the “standard of equitable and fair treatment” set forth in the Bilateral Investment Protection Agreement (BIPA). The original tax claim was below Rs 8,000 crore, but it has increased to Rs 22,000 crore due to interest and penalties claimed by the tax department.
“Vodafone confirms that the investment treaty tribunal ruled in favor of Vodafone. This was a unanimous decision, including that of the Indian-appointed arbitrator, Mr. Rodrigo Oreamuno. The court held that any attempt by India to enforce the tax claim would be in violation of India’s international law obligations, ”the company said in a statement.
Describing it as Vodafone’s second victory after the Supreme Court ruling in his favor, Anuradha Dutt, who represented the company, said: “We hope the government will implement the award as it will boost investor confidence, which is critical for India today.”
The Finance Ministry said it would study the award and decide the future course of action in consultation with its advisers. “After such consultations, the government will consider all options and make a decision on further course of action, including legal remedies, before the appropriate forums,” it said in a statement.
While one option is to implement the award, the government can appeal in a Singapore court, but for limited reasons. In the past, the government had held that an international court did not have jurisdiction over an issue that had been legislated by Parliament.
“The government will have to decide whether to implement this award or not. If not, the matter will go to an Indian court. The award tells the government not to pursue a tax lawsuit, which may not be completely acceptable, “said Akhilesh Ranjan, a former member of the Central Board of Direct Taxes, who also headed the foreign tax wing.
The case, which relates to Vodafone’s acquisition of Hutchison Whampoa’s 67% majority stake in its Indian operations, had faced massive criticism from global investors after then-Finance Minister Pranab Mukherjee retrospectively amended the Income Tax Law to nullify the impact of a Supreme Court ruling. The high court had dismissed the capital gains tax lawsuit in the transaction involving two foreign entities with underlying assets in India.
Mukherjee’s action resulted in what has been described as “tax terrorism” as several companies faced similar lawsuits. Although the government has promised to avoid such retrospective amendments, companies often point to the Vodafone case to argue about the lack of political certainty in the country.
The government’s liability for the arbitration award is estimated to be limited to around 45-50 crore, which is 60% of legal costs and fees.
Although the court award does not set a precedent in other cases, the outcome of a similar dispute involving a claim of more than Rs 10 billion from Cairn Energy in “retrospective taxes” is being closely followed.
“The tax chickens of 2012 have come home to rest … The arbitration victory is a setback for the Indian government, the ramifications of which could be even worse as there are several other pending arbitrations on the same set of issues. Hopefully, the government of India will learn from this arbitration that an attractive investment climate requires them to respect the rule of law rather than undermine it, ”he said. Nigam nuggehalli, Dean of the Law School of the BML Munjal University.
On Friday, Vodafone shares closed 13.6% higher at Rs 10.36 on the Bombay Stock Exchange.
.
