An international tribunal has ruled in favour of British telecom major Vodafone Group Plc in the ₹20,000-crore tax liability case that dates back to 2007, in a move that would set a precedent for a dozen similar cases in India.
In its ruling on Friday, the International Arbitration Tribunal at The Hague ruled that the tax liability on Vodafone is a breach of the investment treaty signed between India and the Netherlands. It also termed the conduct of India’s Income-Tax Department as a breach of ‘fair and equitable’ treatment. “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 international law obligations,” a Vodafone Group spokesperson told BusinessLine in an email reply.The dispute The dispute stems from Vodafone's buyout of Hutchison Whampoa’s stake in Hutchison Essar in 2007 for $10.9 billion.
India’s I-T Department had sought taxes on the deal and served notices to Vodafone International Holding BV, a Dutch entity that acquired the stake in Hutchison Essar (now Vodafone Idea), alleging failure to deduct withholding tax from Hutchison Telecommunications International Ltd.
The company contested the issue in the Bombay High Court and the Supreme Court and subsequently moved the Permanent Court of Arbitration in The Hague in April 2014 ( see timeline ). Per Friday’s ruling, India must stop seeking dues from Vodafone and also pay the latter over ₹40 crore as partial compensation for legal costs.
The I-T Department should also refund about ₹45 crore that was collected as tax from Vodafone.
Will study the award: Govt
“The government will be studying the award and all its aspects carefully in consultation with our counsels... (and) take a decision on further course of action including legal remedies before appropriate fora,” a Finance Ministry statement said.
“This is significant as it may cause other similarly-placed companies to seek arbitral reliefs. While many bilateral investment treaties have been scrapped by the government or modified not to cover taxation within their ambit, this space is likely to witness further action,” said Kumarmanglam Vijay, Partner at J Sagar Associates.
“It is unclear currently if the award brings an end to all tax litigations around the indirect share transfer issue,” said Ravi S Raghavan, Tax Counsel, Majmudar & Partners.
For Vodafone India, this brings additional relief after the recent Supreme Court judgment providing a 10-year AGR repayment period for debt-ridden telecom companies, according to Sonam Chandwani, Managing Partner at KS Legal & Associates.
With inputs from Shishir Sinha and Reuters