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India loses arbitration case against Vodafone over ₹20,000 crore tax claim

Vodafone on Friday won an international arbitration case against the Indian government where the latter demanded upwards of ₹27,900 crore from the telecom conglomerate in retrospective tax. Reuters first reported the development.

In a statement to MediaNama, Vodafone said, “Vodafone confirms that the investment treaty tribunal found in Vodafone’s favour. This was a unanimous decision, including India’s appointed arbitrator Mr Rodrigo Oreamuno. The tribunal held that any attempt by India to enforce the tax demand would be a violation of India’s international law obligations.”

What is this tax issue? Starting in 2007, the Indian government has been demanding that Vodafone pay tax on its acquisition of Hutchison Essar Limited. Vodafone challenged the demand, and won a case in the Supreme Court. But the Indian government — then headed by the UPA — persisted, amending the Income Tax Act retrospectively to validate the claim. Vodafone then started arbitration proceedings in the Permanent Court of Arbitration (PCA) at The Hague.

What is the outcome? The tribunal reportedly said that India was in breach of the India–Netherlands Bilateral Investment Treaty by demanding this tax from Vodafone, by violating its right to “fair and equitable treatment”. Though Vodafone is a British company, the transaction where it acquired Hutch was executed through a subsidiary in the Netherlands, so India’s treaty with that country came into play. Now, the tribunal has reportedly ordered that India award 4.3 million pounds (~₹40 crore) to Vodafone for legal costs; another report pegs that value at ₹85 crore.

Will India appeal? It’s not clear if India will appeal the tax issue, as that has been lost at both the Supreme Court (albeit before the tax law amendment) and the PCA. However, Business Standard reported on Monday that the Indian government will contest the award that India has been ordered to pay if Vodafone approaches Indian courts to enforce it, by arguing that it was within its rights to demand the tax from Vodafone.

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In a statement, the Finance Ministry said, “The Government will be studying the award and all its aspects carefully in consultation with its 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.”

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I cover the digital content ecosystem and telecom for MediaNama.

MediaNama’s mission is to help build a digital ecosystem which is open, fair, global and competitive.

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