Rs 20,000 crore retro tax: International court rules for Vodafone

Vodafone Group Plc gained a long-running tax battle with the Indian authorities, which had demanded that the British telecom operator pay Rs20,000 crore in again taxes, curiosity and penalties associated to its 2007 buy of Hutchison Whampoa’s India operations.

The Permanent Court of Arbitration in The Hague held that any try by India to implement the tax demand could be a violation of the nation’s worldwide regulation obligations, Vodafone Group stated in a press release on Friday. “This was a unanimous decision, including India’s appointed arbitrator Rodrigo Oreamuno,” the assertion stated.

The tax dispute solid a shadow over Vodafone Group’s operations in India’s intensely aggressive telecom market, the place it needed to write off billions of {dollars} price of investments.

Shares of the telco’s Indian unit Vodafone Idea Ltd surged 13.6% after the arbitration court docket ruling. Investors within the Indian unit are hoping that the order will encourage the UK firm to pump in further capital into its India operations. To make certain, Vodafone Group has said that it doesn’t intend to make additional investments within the India enterprise.

“Had the judgment gone against Vodafone, it would have had to pay $2 billion, which is equal to the telco’s stake value in Vodafone Idea,” a telecom analyst stated, requesting anonymity. Vodafone owns 45.1% in Vodafone Idea, India’s third-largest cellular operator.

The arbitration court docket dominated that the Indian tax division’s demand from Vodafone is in breach of the bilateral funding treaty (BIT) between India and The Netherlands.

“Any further challenge to the order, if the tax department decides to do so, has to go to the Singapore high court (jurisdiction),” stated an individual with direct information of the matter, requesting anonymity.

Vodafone was represented by senior counsel Harish Salve and a group of DMD Advocates.

In response to the judgment, the Indian authorities stated it’ll research the arbitration award and can determine on “further course of action” after authorized and different consultations.

Another particular person conscious of the matter stated that the “government of India may have to refund the tax collected, which is about Rs45 crore, if it does not appeal against the award.”

The dispute arose when the federal government amended the Finance Act in 2012, permitting it to retrospectively tax any acquire on switch of shares. Following the modification, Rs 20,000 crore was demanded from Vodafone in again taxes on capital positive factors, curiosity and penalty. The concept was to tax firms for any switch of shares involving an underlying Indian asset.

The modification overturned a Supreme Court judgement that went within the firm’s favour. Vodafone then challenged India’s modification to the regulation, which allowed the nation to retrospectively tax offers, together with its $10.9 billion acquisition of a 67% stake in Hutchison Essar.

“This victory of Vodafone was expected, considering the widespread condemnation India faced for its decision to retrospectively amend the law to tax Vodafone, overruling a favourable judgment from the Supreme Court against the tax office,” stated Amit Maheshwari, companion, Ashok Maheshwari and Associates.