Highlights

British multinational telecommunications company Vodafone Group plc india has won the tax case against government of India at the International Arbitration Tribunal over retrospective tax demand of Rs 20,000 crore ($2 Billion) including the capital gains tax and withholding tax. The Permanent Court of Arbitration has ruled that conduct of IT Department is breach of fair and equitable treatment.

Key Facts

  • DMD Advocates represented Vodafone Group at The Netherlands’s The Hague by DMD Advocates.
  • The International Arbitration Tribunal said that the imposition of a tax liability on Vodafone by the Government of India is breaching the investment treaty agreement signed between The Republic of India and the Netherlands.
  • The tribunal further said the indian government must avoid seeking the dues from Vodafone. The govt should also pay a partial compensation of $5.47 million (£4.3 million ) to Vodafone as legal costs.

What is the dispute?

  • Vodafone & India tax dispute started after Vodafone acquired the 67 per cent of the assets from Hutchison Whampoa of India in 2007.
  • The Government of India then said that Vodafone group was liable to pay for tax deduction at source on the acquisition as per the Income Tax Act and demanded capital gains tax and withholding tax from Vodafone.
  • So in that context, Government of India has made a tax demand of Rs 20,000 crore  related to Vodafone’s $11 billion acquisition of Hutchison Telecom stake since Vodafone had not deducted the tax at the source.
  • However, the Supreme Court of India had ruled down the central government demand on 20 January 2012.
  • But later, the central government amended the finance act and gave power to the IT department to retrospectively tax similar deals. Thus, it put the liability back on Vodafone Group.
  • In April 2014, Vodafone filed an arbitration proceedings against India in the International Arbitration Tribunal.

Retrospective tax

Retrospective tax is the tax that govt charges from the back date,  before some particular law is passed.

Capital Gains Tax

Capital gains tax is levied on the positive difference between the sale price and  original purchase price of an asset. Basically, It is charged on the profit.

Withholding Tax

Amount that an employer withholds from employees’ wages and pays directly to the govt is called as withholding tax.

International Arbitration Tribunal

The IAT is an independent non-governmental panel comprising of  independent and impartial experts. It generally comprises of 3 members nominated by the Parties or appointed by the International Arbitration Institution, or by a National Court based on their legal expertise and knowledge. In 1899, It is a Permanent Court of Arbitration established. IAT is headquartered in Netherland’s Hague. The Tribunal is dedicated to resolve the dispute and facilitate arbitration between States. Vodafone won tax case against India