On September 25, 2020, the Telecom giant Vodafone has won an arbitration against India over the government’s retro tax demand of Rs.20,000 Crores which it had described as unfair, at the Permanent Court of Arbitration in Hague.

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The Permanent Court of Arbitration in Hague has held that the conduct of the Indian authorities was in breach of “fair and equitable” treatment assured under the Bilateral Investment Treaty (BIT), signed between Netherlands and India.

The tax dispute stems from Vodafone’s acquisition of the Indian mobile assets from Hutchison Whampoa in 2007. In that year Vodafone bought a 67 per cent stake in Hutchison Essar for USD 11.1 billion. At that time, the Indian tax authorities had termed the structure of the multi-billion dollar transaction as a tax avoidance scheme. The government had said then, that the Hutchison-Vodafone deal was liable for tax deduction at source (TDS) under the Income Tax (IT) Act, and since Vodafone had not deducted the tax at source, the government raised the demand of Rs.20,000 Crores including interest and penalties.

The issue saw litigation, stretching all the way up to the Supreme Court. While the Supreme Court subsequently quashed the demand on January 20, 2012, the government amended its law retrospectively, putting the liability back on Vodafone Group. 

In April 2014, Vodafone International Holdings initiated Arbitration Proceedings under the India – Netherlands Bilateral Investment Treaty. It is under this treaty that the Permanent Court of Arbitration in Hague had conducted hearings between the two sides.

The Permanent Court of Arbitration in Hague said in its ruling that the government must cease seeking the dues from Vodafone and should also pay 4.3 Million Pounds ($5.47 Million) to the company as partial compensation for its legal costs.

Vodafone was represented at Hague by DMD Advocates. DMD advocates issued a statement saying, “Vodafone has finally got justice. Hopefully, this award brings an end to all litigation around the issue.”​

The Ministry of Finance has said in reply to this judgement, “The Government will be studying the award and all its aspects carefully in consultation with our counsels. After such consultations, the Government will consider all options and take a decision on further course of action including legal remedies before appropriate fora.” 

With Warm Regards,

CL Bureau.

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