Vodafone Vs India Case: Vodafone won tax case against India at International Arbitration Tribunal

Vodafone Group has won the tax case against India at the  international arbitration Tribunal over retrospective tax demand of ₹20,000 crore including the capital gains tax and withholding tax. The Permanent Court of Arbitration has ruled that conduct of Income Tax Department is breach of fair and equitable treatment.

Key Facts

  • DMD Advocates represented Vodafone at The Hague by DMD Advocates.
  • The tribunal said that the imposition of a tax liability on Vodafone by the Indian government is breaching the investment treaty agreement signed between India and the Netherlands.
  • The tribunal further said the government must avoid seeking the dues from Vodafone. The government should also pay a partial compensation of $5.47 million to Vodafone as legal costs.

What was the Issue?

  • The tax dispute started after Vodafone acquired the 67% of the assets from Hutchison Whampoa of India in 2007.
  • The Indian government then said that Vodafone was liable to pay for tax deduction at source (TDS) on the acquisition as per the Income Tax (IT) Act and demanded capital gains tax and withholding tax from Vodafone.
  • So in that context, government has made a tax demand of ₹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 government demand on January 20, 2012.
  • But later, the government amended the finance act and gave power to the Income tax 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 government 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 government is called as withholding tax.

International Arbitration Tribunal

The tribunal is an independent non-governmental panel comprising of  independent and impartial experts. It generally comprises of three members nominated by the Parties or appointed by the International Arbitration Institution, or by a National Court based on their legal expertise and knowledge. It is a Permanent Court of Arbitration established in 1899. It is headquartered in Hague, Netherlands. The organization is dedicated to resolve the dispute and facilitate arbitration between States.