Vodafone retro tax arbitration: India challenges ruling in Singapore

The Indian government has challenged an international arbitration tribunal’s ruling against it in a case demanding ₹22,100 crore in taxes from Vodafone Group plc.

According to a report in NDTV on Thursday (December 24), quoting sources, India has challenged the verdict in Singapore.

In September, the British telecom giant won the arbitration against the Indian government over a demand for taxes using retrospective legislation.

Related News: Vodafone wins case against India

An international arbitration tribunal ruled that India’s demand in past taxes were in breach of fair treatment under a bilateral investment protection pact.

The Government of India’s liability will be restricted to about ₹75 crore – ₹30 crore in cost and another ₹45 crore in tax refund, sources with direct knowledge of the matter told news agency PTI, after the verdict came.

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 ₹7,990 crore in capital gains taxes (₹22,100 crore after including interest and penalty) under the Netherlands-India Bilateral Investment Treaty (BIT).

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.

In May that year, Parliament passed the Finance Act 2012 that amended various provisions of the Income Tax Act 1961 with retrospective effect to tax any gain on transfer of shares in a non-Indian company which derives substantial value from underlying Indian assets.

The company was in January 2013 served a tax notice of Rs 14,200 crore after including interest on the principal amount. A year later, Vodafone challenged the tax demand under the Dutch BIT.

In April 2014, the company served the notice of arbitration after out-of-court dispute resolution talks failed.

The tax department in February 2016 served a demand notice of ₹22,100 crore, including interest accruing since the date of the original demand.

Yesterday, the Indian government lost another international arbitration over the retrospective levy of taxes as it was ordered to return up to $1.4 billion to Cairn Energy plc of the UK.

The three-member tribunal, which also comprised a nominee of the Indian government, unanimously ruled that India’s claim of ₹10,247 crore in past taxes over a 2006-07 internal reorganisation of Cairn’s India business was not a valid demand.

India, it said, “failed to accord the Claimants’ (Cairn Energy’s) investments fair and equitable treatment” under the bilateral investment protection pact the nation had with the UK, it said in a 582-page order.

(With inputs from PTI)