Rs 20,000 crore tax dispute: Vodafone wins arbitration case against India

New Delhi, Sep 25: Telecom giant Vodafone on Friday won an international arbitration case against the Indian government in a Rs 20,000 crore retrospective tax dispute.

An international court in Singapore ruled that the Indian government's imposition of tax liability on Vodafone is in breach of the investment treaty agreement between India and the Netherlands, reports Reuters.

However, the Centre said it will study the arbitration award on decide on its future course of action.

After such consultations, the government will consider all options and take a decision on further course of action including legal remedies before appropriate fora," the finance ministry said in a statement.

Meanwhile, reports said the Government of India's liability will be restricted to about Rs 75 crore in cost refunds.

As per the award, the government has to reimburse Vodafone 60 per cent of its legal costs and half of the 6,000 Euros cost borne by Vodafone for appointing an arbitrator on the panel.

Vodafone had challenged India using a 2012 legislation that gave it powers to retrospective tax deals like Vodafone's USD 11-billion acquisition of 67 per cent stake in the mobile phone business owned by Hutchison Whampoa in 2007.

The company had challenged the demand of Rs 7,990 crore in capital gains taxes (Rs 22,100 crore after including interest and penalty) under the treaty.

Tax authorities had in September 2007 served notice to Vodafone International Holdings BV for its alleged failure to deduct withholding tax from consideration paid to the Hutchison Telecommunications International Ltd.

Vodafone challenged this in the Supreme Court, which in January 2012 set it aside saying the transaction was not taxable in India and so the company had no obligation to withhold tax.

In May that year, Parliament passed the Finance Act 2012 that amended various provisions of the Income Tax Act 1961 with retrospective effect to tax any gain on transfer of shares in a non-Indian company, which derives substantial value from underlying Indian assets.

The company was in January 2013 served a tax notice of Rs 14,200 crore after including interest on the principal amount. A year later, Vodafone challenged the tax demand under the Dutch BIT.

The official said the company in April 2014 served the notice of arbitration after out-of-the-court dispute resolution talks failed.

The tax department in February 2016 served a demand notice of Rs 22,100 crore, including interest accruing since the date of the original demand.

Vodafone maintained that there is no liability and that it will "continue to defend vigorously any allegation that VIHBV or Vodafone India Ltd is liable to pay tax in connection with the transaction with Hutchison and will continue to exercise all rights to seek redress".