India has challenged in Singapore an international arbitration court’s verdict against it over a $2 billion tax claim involving Vodafone Group Plc, a senior government official told Reuters on Thursday on condition of anonymity.
British telecom giant Vodafone Group plc in September this year had won an arbitration against the Indian government over a demand for Rs 22,100 crore in taxes using retrospective legislation. An international arbitration tribunal ruled that India’s demand in past taxes were in breach of fair treatment under a bilateral investment protection pact.
The Centre had then said that it will study the arbitration award and decide on its future course of action.
The tax dispute, which involves interest of ₹ 12,000 crore and ₹ 7,900 crore in penalties, 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.
Tax authorities had in September 2007 served notice to Vodafone International Holdings BV (VIHBV) for its alleged failure to deduct withholding tax from consideration paid to the Hutchison Telecommunications International Ltd. Vodafone challenged this in the Supreme Court, which in January 2012 set it aside, saying the transaction was not taxable in India and so the company had no obligation to withhold tax.
In May that year, Parliament passed the Finance Act 2012 that amended various provisions of the Income Tax Act 1961 with retrospective effect to tax any gain on transfer of shares in a non-Indian company which derives substantial value from underlying Indian assets.
The company was in January 2013 served a tax notice of Rs 14,200 crore after including interest on the principal amount. A year later, Vodafone challenged the tax demand under the Dutch BIT. Sources said the company in April 2014 served the notice of arbitration after out-of-court dispute resolution talks failed.
The tax department in February 2016 served a demand notice of Rs 22,100 crore, including interest accruing since the date of the original demand. Vodafone has always maintained that there is no liability and that it will “continue to defend vigorously any allegation that VIHBV or Vodafone India Ltd is liable to pay tax in connection with the transaction with Hutchison and will continue to exercise all rights to seek redress”.
Besides Vodafone, the Indian government also used the retrospective tax legislation to seek Rs 10,247 crore from British oil explorer Cairn Energy Plc over a 2006 reorganisation of its Indian businesses.
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