The Indian government will be contesting the compensation given to Vodafone by an international court at The Hague in the retrospective tax dispute case. India has simultaneously reached out to foreign institutional investors. India is reassuring them that the Indian government will honor its obligations and taxation policy.
The parent company of Vodafone India had won the Retrospective tax case against the Centre. The win came in the Permanent Court of Arbitration at The Hague recently. 40,000 crore was levied as retrospective tax dues on Vodafone by the Indian government. According to sources, the Indian government remains confident that it can successfully challenge the enforcement of the award in Indian courts.
The ruling by the International Court had let Vodafone and also its Indian subsidiary off the hook for the taxation amount. It was a breather for the company’s operations in India as it is facing an immense debt burden. The case relates to Vodafone’s acquisition of Hutch in the year 2007. The Indian Government was trying to get the company to pay tax on its purchase. This was despite the Income Tax Act being amended to cover the deal only in 2012.
Vodafone’s win brought the focus back to India’s obligations to many foreign investors it is trying to woo. The government has assured the investors that the country will follow a uniform tax policy.
The International Court’s Ruling in the Retrospective Tax Dispute Case
The ruling came on 25th September 2020 by the Permanent Court of Arbitration in the Netherlands. The court found merit in the telecom company’s argument. The court then directed the Indian Government to cease the tax demand. Also, any cease any demands on the interest levied, and penalty against Vodafone.
Vodafone had initiated the case in 2014. It called for Article 3 of the arbitration rules of the United Nations Commission on International Trade Law. According to the company, the tax liability imposed on it via the retrospective amendments to the income tax law violates the principles of equitable and fair treatment under the India-Netherlands Bilateral Investment Treaty.
The court in its ruling also directed the Indian Government to reimburse 60% of Vodafone’s legal costs. And also to reimburse 50% of the fees paid by the company to the appointing authority. The court further ordered that any attempt by India to enforce the tax demand would be a violation of India’s international law obligations.
According to an Indian government official, if the government chooses not to appeal the court’s decision, it would have to pay the telecom company nearly 85 crores. It will include 45 crores in taxes and also 40 crores in cost.