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India has appealed against the Vodafone tax arbitral award before a Singapore court, government sources confirmed. The tax dispute involves an amount of approximately $2 billion.
Also read: Retro tax flare-up: India loses Cairn case
In September, an international arbitration tribunal in The Hague had ruled that India’s tax demand from Vodafone based on a retrospective legislation was in the ‘breach of the guarantee of fair and equitable treatment’ guaranteed under the India-Netherlands Bilateral Investment Treaty. The Indian government had 90 days to appeal.
The issue of retrospective taxation first came to public attention when the government pursued what it described as a ‘test case’ against Vodafone, seeking to tax indirect transfers of shares in a non-Indian company. In January 2012, the Supreme Court unanimously found in favour of Vodafone, confirming that such transfers were not within the Indian tax remit.
Also read: Vodafone ruling gives government a chance to clear the air
Less than two months after the apex court verdict, the Finance Ministry introduced an amendment to Section 9(1)(i) of the Income Tax Act, 1961, through Finance Bill, 2012. Among other things, it said shares in a non-Indian company shall always be deemed to have been situated in India if their value derived substantially from underlying Indian assets. Describing it as ‘clarificatory’ in order to effectively overturn the Supreme Court’s decision, the Finance Act 2012 declared that the retrospective amendment shall be deemed to have taken effect from 50 years earlier, on April 1, 1962.
Following the amendment and action by the tax department, the tax dispute moved to the international level when Vodafone commenced arbitration proceedings and managed to defend its side.
Cairn case
Earlier this week, another international arbitration case went against India and in favour of an MNC. An arbitration panel ordered the Indian government to pay Cairn Energy around $1.4 billion (including interest, damage and cost). Though the government has said it is studying the order and will consider all options, the possibility is that this too will be challenged.
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