Vodafone wins arbitration award in Rs20,000-cr retro tax case
28 September 2020
British telecom major Vodafone Group Plc has secured an arbitration award from the Permanent Court of Arbitration in The Hague in its dispute with Indian tax authorities against the retrospective tax demand of Rs20,000 crore.
The Hague court ruled that the conduct of the Income Tax Department is in breach of 'fair and equitable' treatment and is in violation of India’s bilateral investment treaty with the Netherlands.
The telecom major had moved the International Court of Justice (ICJ) in 2016 after the Indian government brought in new law to overcome a Supreme Court verdict that favoured Vodafone in the tax demand.
Vodafone had challenged the Income tax Department’s demand of Rs7,990 in capital gains tax on its 2007 acquisition of Hutchison Essar’s assets in India, which had since shot up to Rs22,100 crore after including interest and penalty.
The tax demand had risen to Rs11,000 crore in 2009 and the then UPA government held that Vodafone’s $11 billion acquisition of Hutchison Telecom stake was liable for tax deduction at source (TDS) under the Income Tax Act since Vodafone had not deducted the tax at source.
On 12 February 2016, the telecom company received a notice "of an outstanding tax demand of Rs22,100 crore (which included interest accruing since the date of the original demand)."
British telecom major Vodafone plc concluded the purchase deal of Hong Kong-based Hutchison’s assets in India from the Netherlands in order to avoid paying tax anywhere. However, the Supreme Court quashed the demand.
The government since amended its law retrospectively, putting the liability back on Vodafone Group.
Vodafone invoked the BIT in January 2014 to challenge the demand. Since that could not resolve the issue, Vodafone served an arbitration notice.