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India challenges Vodafone retrospective tax case verdict in Singapore tribunal

The decision to file the appeal in a court in Singapore was taken after “top ranking” officials met with officials from the Department of Telecommunication (DoT) and Ministry of Finance, and instructed them not to wait on the issue, one of the sources said.

Written by Aashish Aryan | New Delhi | Updated: December 24, 2020 11:53:34 pm
Customers talk on mobile phones outside a Vodafone India Ltd. store in New Delhi (Photographer: Prashanth Vishwanathan/Bloomberg)

The Indian government has challenged the verdict delivered in the Vodafone retrospective taxation case by the Singapore seat of Permanent Court of Arbitration of The Hague, sources in the know of the development told The Indian Express.

The decision to file the appeal in a court in Singapore was taken after “top ranking” officials met with officials from the Department of Telecommunication (DoT) and Ministry of Finance, and instructed them not to wait on the issue, one of the sources said.

The sources, however, did not specify as to when the challenge was filed. Beginning September 25, when the verdict was delivered, India had 90 days or till Thursday, December 24, to file the appeal.

On Wednesday, India was handed its second defeat in the retrospective taxation case after the Netherlands seat of the Permanent Court of Arbitration of The Hague ruled that the Indian government’s retrospective tax demand against the global oil and gas major was “inconsistent” with the UK-India bilateral treaty.

Like the Vodafone judgment, the international tribunal once again said that India’s demand of retrospective tax on Cairn Energy Plc was “in breach of the guarantee of fair and equitable treatment”. In addition to that, in both the judgments, the international arbitration tribunal has held that India must not make any more attempts to recover “the alleged tax liability or any interest and or penalties arising from this alleged liability through any other means”.

Earlier this year, on September 25, The Permanent Court of Arbitration at The Hague’s Singapore seat had ruled 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 international arbitration tribunal had then also ruled that the Indian government must reimburse 4.3 million pounds to Vodafone Group for costs incurred on legal representation and assistance as well as for fees paid by the company to the arbitration court.

Following the ruling, Vodafone Group said that “the tribunal held that any attempt by India to enforce the tax demand would be a violation of India’s international law obligations”. “This was a unanimous decision, including India’s appointed arbitrator Mr Rodrigo Oreamuno,” a company spokesperson had then said.

Explained

Case dates back to 2007

The Vodafone Group retrospective taxation case dates back to 2007 when the UPA government had raised an initial tax demand of Rs 7,990 crore in capital gains and withholding tax against Vodafone Group when the company had acquired 67 per cent of stake in Hutchison Whampoa for $11 billion.

The Vodafone Group retrospective taxation case dates back to 2007 when the UPA government had raised an initial tax demand of Rs 7,990 crore in capital gains and withholding tax against Vodafone Group when the company had acquired 67 per cent of stake in Hutchison Whampoa for $11 billion.

India had then said that Vodafone Group ought to have taken into account the capital gains and withholding taxes and was, therefore, liable to pay Rs 22,100 crore including interest and penalties.

The company had, on the other hand, said that it would not have to pay the taxes since India and the Netherlands had signed a bilateral investment treaty (BIT) in 1995, which exempted such investments from taxation.

However, the Income Tax department continued to send demand and recovery notices to the company, which challenged them first in the Bombay High Court and later in the Supreme Court.

In 2012, the Supreme Court ruled that the Vodafone Group’s interpretation of the Income Tax Act of 1961 was correct and that it did not have to pay any taxes for the stake buy.

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