Vodafone wins arbitration case against govt in $2 bn tax dispute case

In April 2014, Vodafone initiated arbitration proceedings against India.
Vodafone Group Plc has won an international arbitration case against the Indian government in a $2 billion tax dispute, two sources with direct knowledge of the matter said.

An international arbitration tribunal in The Hague ruled that India’s imposition of a tax liability on Vodafone, as well as interest and penalties, were in a breach of an investment treaty agreement between India and the Netherlands, one of the sources said.

The tribunal, in its ruling, said 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, the source said.

Vodafone and India’s finance ministry did not immediately respond to a request for comment.

The tax dispute stems from Vodafone’s acquisition of the Indian mobile assets from Hutchison Whampoa in 2007. The government said Vodafone was liable to pay taxes on the acquisition, which the company contested.

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 had already been concluded.

In April 2014, Vodafone initiated arbitration proceedings against India.

India is entangled in more than a dozen international arbitration cases against companies, including Cairn Energy, over retrospective tax claims and cancellation of contracts. The exchequer could end up paying billions of dollars in damages if it loses.

A timeline of the Vodafone tax battle

2007: Vodafone buys Hutchison’s India assets
Sep: Gets tax notice for not deducting tax at source
Oct: Challenges notice in Bombay HC

Dec: Bombay HC dismisses petition, allows tax dept to proceed on showcause notice

May: Tax dept passes order claiming jurisdiction to tax the transaction
June: Vodafone challenges the order through writ petition in Bombay HC (dismissed in September).
Sep: Vodafone moves SC against the HC decision
Nov: Asked to deposit Rs 2,500 cr with SC and provide a guarantee for Rs 8,500 cr
Mar: Vodafone receives a notice asking why it should not be liable for penalties of up to 100%
Apr: SC stays tax dept from enforcing any penalty
Jan: SC says I-T can’t levy tax on the deal
Mar: Retro amendments allow govt to tax such deals
Apr 16: Vodafone issues notice to govt, initiating arbitration for not protecting investor rights
Jan 3: Vodafone received Rs 14,200-crore tax demand (principal and interest, not penalties)
May: Law Minister Kapil Sibal approves a settlement of the tax dispute through conciliation
Jun 4: Cabinet approves non-binding conciliation
Dec 31: Vodafone responds to the govt's conciliation offer
Jan: Vodafone challenges the demand under the Netherlands-India Bilateral Investment Treaty (BIT)
Apr 17: Vodafone serves an arbitration notice under the India-Netherlands Bilateral Investment Protection Agreement (BIPA), after I-T department withdraws conciliation offer without waiting for a tribunal's decision in the transfer pricing case
Feb 12: Vodafone receives a Rs 22,100-crore tax demand (including interest from the date of the first demand)
Jan: Vodafone serves a second arbitration notice — this one under the India-UK BIT
Aug 22: The Delhi High Court restrains Vodafone from participating in the second arbitration
Dec 14: The Supreme Court allows Vodafone to initiate the second arbitration process
May 7: The Delhi HC refuses to restrict Vodafone from pursuing simultaneous arbitrations before two different tribunals on the same dispute
Sep 25: Vodafone is reported to have won the arbitration case. The international tribunal in The Hague is quote as having ruled India’s imposition of tax liability on Vodafone, as well as interest and penalties, in a breach of the India-Netherlands BIPA

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