Indian Government moves Singapore Court to challenge Vodafone Arbitration Ruling

Indian Government moves Singapore Court to challenge Vodafone Arbitration Ruling

The Government of India (Indian Government) challenged in the Singapore Court the ruling of an International Arbitration Tribunal (Tribunal) that rejected a tax claim of $2 billion

Since 2007, a tax dispute was going on between the Indian Government and the British telecom giant Vodafone Group Plc. The dispute involved an interest of Rs. 12,000 Crores and Rs. 7,900 Crores in form of penalties. It was based on the issue related to the acquisition of land by Vodafone from the Indian mobile assets named Hutchison Whampoa.

Indian Government averred that Vodafone had a liability to pay taxes on the said land acquisition. It was contested by Vodafone and they denied all liabilities. In September 2007, a notice was served on Vodafone International Holdings BV (VIHBV) by the Tax Authorities. The notice was served as VIHBV failed to deduct withholding tax from consideration paid to Hutchison Telecommunications International Ltd.

Vodafone challenged this in the Supreme Court (SC) in January 2012. The SC stated that the transaction was not taxable in India and so the company had no obligation to withhold tax.

In May 2012, the Finance Act 2012 was passed by the Parliament wherein various provisions of the Income Tax Act 1961 were amended. The provisions were given a retrospective effect related to tax-based gain on transfer of shares in a company that is not based in India and it derives substantial value from underlying Indian assets.

In April 2014, Vodafone challenged the tax demand and served the notice of arbitration. After out-of-court dispute resolution talks were failed between the Indian Government and Vodafone.

The Tax Department in February 2016 served a notice on Vodafone wherein it made a demand of Rs. 22,100 Crores that included the interest accruing since the date of the original demand. Vodafone maintained its contention that there is no liability on the company and they further said "They shall 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".

Vodafone won the said matter against the Indian Government in September 2020.The Tribunal passed a ruling wherein it stated that the retrospective effect of tax amended laws would violate fair treatment under a bilateral investment protection pact.

The Tribunal rejected the tax claim of the Indian Government that was beyond $2 Billion from the Vodafone Group Plc. According to a senior government official, the Indian Government has challenged the said ruling of the Tribunal in the Singapore Court.