The Centre is studying the order regarding taxation of Vodafone Group Plc and does not agree with the court invoking Bilateral Investment Treaty (BIT) between two countries to question its “sovereign right of taxation.” Top government sources said Tuesday the Centre maintains its stand on the policy of “no retrospective taxation”, but to invoke at BIT to reject the government’s right to tax seems questionable.
“The government is studying this issue carefully. A BIT provides investment protection and investment facilitation for both countries concerned, but it has nothing to do with taxation rights. Therefore, to use a BIT to reject a sovereign’s right to taxation is unpalatable and the government is studying its options before making up its mind,” the sources said. Retrospective taxation is not right and we don’t agree with that, but invoking a BIT to reject taxation rights of the government is not acceptable, the sources said, indicating it may go in for appeal after seeking legal advice.
In a relief for Vodafone Group Plc, the Permanent Court of Arbitration at The Hague ruled last month that India’s retrospective demand of Rs 22,100 crore as capital gains and withholding tax imposed on the telco for a 2007 deal was “in breach of the guarantee of fair and equitable treatment” that the company was entitled for its investments in the country’s mobile telephone business.
The Finance Ministry had then said it would study the order “and all its aspects carefully in consultation” with its counsel. “After such consultations, the government will consider all options and take a decision on further course of action including legal remedies before appropriate fora,” it said in a statement. “The property and assets is question are being bought and sold in India even though transaction happened overseas, we have the right into look into its nuances,” they said. The Vodafone Group retrospective taxation case dates back to 2007 when the then UPA government had raised an initial tax demand of Rs 7,990 crore in capital gains and withholding tax against Vodafone Group when the firm had acquired 67 per cent of stake in Hutchison Whampoa for $11 billion.
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