The Permanent Court of Arbitration at The Hague ruled that India’s retrospective demand of ₹22,100 crore as capital gains and withholding tax imposed on the British telecommunication company for a 2007 deal was “in breach of the guarantee of fair and equitable treatment”.
The tribunal, in its ruling, said the government must cease seeking the dues from Vodafone and should also pay over ₹ 40 crore to the company as partial compensation for its legal costs, the source said.
The history
In 2007, Vodafone had acquired a majority stake (67)% in Hutchison Whampoa for $11 billion. Later in the same year, the India government for slapped a demand of ₹ 7,990 crore in capital gains and withholding tax from Vodafone, saying the company should was liable for tax on the acquisition.
In 2012, India’s top court ruled in favour of the telecom provider but the government later that year changed the rules to enable it to tax deals that infamously came to be known as ‘retrospective tax’. In April 2014, Vodafone initiated arbitration proceedings against India.
The Case
By 2014, when all talks and discussions failed, Vodafone Group invoked Clause 9 of the Bilateral Investment Treaty (BIT) signed between India and the Netherlands in 1995. In 1995, India and the Netherlands had signed a BIT for promotion and protection of investment by companies of each country in the other’s jurisdiction.
The key decision factors
Court of Arbitration concluded that there was a clear violation of the BIT and the United Nations Commission on International Trade Law (UNCITRAL), and ruled the decision in favour of Vodaphone.
In its ruling, the arbitration tribunal also said that now since it had been established that India had breached the terms of the agreement, it must now stop efforts to recover the said taxes from Vodafone.
The tribunal, in its ruling, said the government must cease seeking the dues from Vodafone and should also pay over ₹ 40 crore to the company as partial compensation for its legal costs, the source said.
Bhoi Smrutirekha Dharanidhar