Telecom giant Vodafone on Friday won a significant ruling against the Indian government in an international court over Rs 20,000 crore in dues which it had described as unfair.
Sumit Mangal, Partner, L&L Partners said: “This is a landmark victory for Vodafone and will set a good precedent for others to take international tax issues to international arbitration.
It also resolves the controversy that tax issues could be contested under Investment Treaties or Bilateral Investment Promotion and Investment Agreement (BIPA) entered into by India with other countries.
An international arbitration tribunal in The Hague ruled that India’s imposition of tax liability on Vodafone, as well as interest and penalties, were in a breach of an investment treaty agreement between India and the Netherlands, one of the sources said.
Observing that the retrospective taxation despite the Supreme Court’s judgment in favour of Vodafone was in breach of the bilateral investment treaty, the court has directed India to reimburse a sum of Rs 40.3 crore (GBP 4.3 Million) to Vodafone.
The telco had moved the International Court of Justice (ICJ) in 2016 due to a lack of consensus between the parties’ arbitrators in finalising a judge for the tax dispute.
Vodafone had before the arbitration tribunal challenged India’s usage of a 2012 legislation that gave it powers to retrospectively tax deals like Vodafone’s $11 billion acquisition of 67% stake in the mobile phone business owned by Hutchison Whampoa in 2007. It challenged the demand of Rs 7,990 crore in capital gains taxes (Rs 22,100 crore after including interest and penalty) under the Netherlands-India Bilateral Investment Treaty (BIT).
Sources said the tax demand was on the UK-listed company and Vodafone’s India venture faced no liability. Vodafone merged its India operations with billionaire Kumar Mangalam Birla’s conglomerate but the combined entity Vodafone Idea Ltd is facing a $7.8 billion bill in past statutory dues.
Tax authorities had in September 2007 served notice to Vodafone International Holdings BV (VIHBV) for its alleged failure to deduct withholding tax from consideration paid to the Hutchison Telecommunications International Ltd. Vodafone challenged this in the Supreme Court, which in January 2012 set it aside, saying the transaction was not taxable in India and so the company had no obligation to withhold tax.
Spurred by the news, on Friday Vodafone Idea’s scrip on BSE closed 12% higher at ₹10.20.
