Vodafone Wins International Arbitration Against Government In $2 Billion Tax Case

Joanna Estrada
September 26, 2020

Shares of Vodafone Idea Ltd zoomed almost 14 per cent on Friday after Vodafone won the arbitration case against India over Rs 20,000 crore retrospective tax dispute. Also, the government of India may have to refund the tax collected, which is about Rs 45 crore, only if it does not go for appeal against the award.

"Hopefully, the Indian government will learn from this arbitration that an attractive investment climate requires that they respect the rule of law rather than undermine it", said Nigam Nuggehalli, dean of the School of Law at BML Munjal University.

The company said in a statement: "Vodafone confirms that the investment treaty tribunal found (the case) in Vodafone's favour".

"There's a wrong impression that the government will have to return Rs 20,000 crore because of award in arbitration case invoked by Vodafone International Holding BV". "This was a unanimous decision, including India's appointed arbitrator Rodrigo Oreamuno. The tribunal held that any attempt by India to enforce the tax demand would be a violation of India's worldwide law obligations".

However, the Centre said it will study the arbitration award and decide on its future course of action. "This is equal to 60 per cent of the tribunal's administrative cost while the rest 40 per cent of the cost would be borne by the Vodafone", sources said.

In May 2018, the Delhi High Court had allowed the second arbitration initiated by Vodafone Plc. under the India-UK Bilateral Investment Protection Agreement in the over Rs 20,000 crore retrospective tax case. Mukherjee's action resulted in what has come to be described as "tax terrorism" as several companies faced similar demands.

The Permanent Court of Arbitration (PCA) at The Hague has ruled that the conduct of India's tax department is in breach of "fair and equitable" treatment.

Following the judgment in Vodafone's favour, shares of the telco's Indian subsidiary Vodafone Idea Ltd rallied as the verdict improved prospects of investment by the promoter in India operations.

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.

The dispute arose when the Indian government amended the Finance Act in 2012, where the power to retrospectively tax any gain on transfer of share was introduced. During the day, it zoomed 14.91 per cent to Rs 10.48. "The award does tell the government not to pursue a tax demand, which may not be fully acceptable", said Akhilesh Ranjan, a former member of the Central Board of Direct Taxes, who also headed the foreign tax wing.

Vodafone has always maintained that there is no liability and that it will "continue to defend vigorously any allegation that VIHBV or Vodafone India Ltd is liable to pay tax in connection with the transaction with Hutchison and will continue to exercise all rights to seek redress". The Indian government insisted that Vodafone pay taxes on the acquisition, which the company refused.

Soman Chandwari of KS Legal & Associates said the recent Supreme Court judgment providing a 10-year repayment period for debt-ridden telecom companies brought some respite for Vodafone-Idea.

Other reports by Click Lancashire

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