Vodafone Scores a Victory in $3 Billion Tax Spat With India

Ruben Fields
September 26, 2020

The Indian government insisted that Vodafone pay taxes on the acquisition, which the company refused.

"The award will have enormous persuasive value for all other tax cases that are going on, but the Indian government is likely to consider each case differently based on facts", said Ravi Raghavan, tax counsel at Majumdar & Partners.

Vodafone wins the arbitration case against the Indian government.

India's finance ministry said it will carefully study the award, together with its lawyers.

The Finance Ministry, in a statement, said that the government will take a decision on further course of action, including legal remedies, among other options after studying the award and consulting with its counsel on the matter.

"This is the second time we got justice", she said, referring to India's Supreme Court ruling in favor of the company in 2012.

An global arbitration tribunal ruled that India's demand in past taxes were in breach of fair treatment under a bilateral investment protection pact. Of the Rs 85-crore outgo, Rs 45 crore will be towards the tax collected from Vodafone so far and Rs 40 crore, or 4.3 million pound sterling, towards the administrative cost charged by the tribunal.

The dispute ties to Vodafone's acquisition of Hutchison Whampoa's mobile assets in 2007.

The Permanent Court of Arbitration, Hague, passed a judgment in favour of Vodafone asking the Indian government not to go ahead with the tax demand of Rs 14,200 crore (excluding the interest and penalty).

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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. However, the government changed the rules to enable it to tax agreements that had already been concluded.

Vodafone merged its India operations with billionaire Kumar Mangalam Birla's conglomerate but the combined entity Vodafone Idea Ltd is facing a United States dollars 7.8 billion bill in past statutory dues.

Then, infamously, Mukherjee went on a vengeful spree by amending the Income Tax Act with retrospective effect to ensure that any financial transaction by an Indian company, even if happened overseas, was liable to be taxed by India.

"[This] hearing was held in the Peace Palace in The Hague but the seat [of arbitration] is Singapore", where an award can be challenged, but what the Indian side will do cannot be predicted, she added.

Vodafone said in a statement the amount of the award was confidential.

Vodafone maintained that there was no tax to be paid, and in 2014, it used the BIT to challenge the demand. The company's market valuation rose by Rs 3,563.86 crore to Rs 29,769.86 crore on the BSE.

The Arbitral Tribunal held that it has jurisdiction to consider Vodafone's claims on breach of the BIT between the two countries.

The tax department in February 2016 served a demand notice of Rs 22,100 crore, including interest accruing since the date of the original demand. On its part, the government amended its law retrospectively.

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