Vodafone wins arbitration case against India in Rs 20,000 crore tax dispute

In 2014, Vodafone had initiated the proceedings claiming that the tax liability imposed on it violated the principles of equitable and fair treatment under the treaty.

Published: 25th September 2020 04:21 PM  |   Last Updated: 26th September 2020 08:16 AM   |  A+A-

Vodafone Idea

Vodafone Idea (File Photo | Reuters)

Express News Service

NEW DELHI: British telecom giant Vodafone on Friday won its decade-long legal battle against a Rs 22,100 crore retrospective income tax demand raised by the Indian government. 

The Permanent Court of Arbitration at The Hague (an international arbitration tribunal) ruled that India's tax law, imposed retrospectively after the SC had ruled in Vodafone's favour, violated conditions that guaranteed "fair and equitable" treatment to investors. 

The tribunal went on to note that the Government of India was now obligated to cease its demands on the company under the bilateral treaty signed between The Netherlands and India in 1995. India has also been directed to reimburse Vodafone Rs 40.3 crore towards legal costs incurred. 

The development is a significant boost to Vodafone Group and its joint venture in India, Vi (erstwhile Vodafone Idea). Vi stock prices surged 13.6 per cent following the news, with analysts noting that relief from the massive tax demand may result in Vodafone Group freeing up some cash to help its beleaguered Indian venture. 

The case has been surrounded by controversy from the get-go. The Centre, under the UPA, had first sent notices to Vodafone in 2007 alleging that it had failed to deduct relevant taxes while acquiring Hutchison (through its investment arm VIHBV). The firm challenged the notice in the courts and in January 2012, the Supreme Court of India ruled in its favour. 

The transaction, the SC noted, was not taxable in India under the Income Tax Act 1961.

But, the Centre had no intentions of letting things stand and pulled off a highly controversial move--one that the international tribunal has now termed neither fair, nor equitable. 

Just weeks after the judgement, then Finance Minister Pranab Mukherjee moved the Finance Act 2012 which retrosopectively made companies taxable for any gain on "transfer of shares in a non-Indian company, which derives substantial value from underlying Indian assets". 

The consequence was that in January 2013, having already won the argument at the SC, Vodafone was left facing a total income tax demand of Rs 14,200 crore, including principal and interest, but no penalties. 

The company then used the bilateral treaty to challenge the demand in January 2014, by when the NDA government had arrived on the scene. Negotiations followed, but an arbitration notice was eventually served by the company in April, 2014. 

Two more years passed in legal minutae, but the Centre doubled down on its claims in February 2016. Vodafone received a fresh notice from Indian tax authorities for an amount that had ballooned to Rs 22,100 crore, including interest. But this time, it was accompanied by a threat that failure to pay could result in confiscation of its assets in India. 

Vodafone finally went to The Hague for international arbitration in June 2016. 


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