Will take appropriate action, says Finance Ministry on Vodafone tribunal setback

The authorities might take applicable motion on the Vodafone tax case, two finance ministry officers stated including that there isn’t a query of India shedding Rs 20,000 crore as Vodafone didn’t pay the tax, together with curiosity and penalty on it

Also, the Tribunal has not accepted the declare of Vodafone for award of damages, they stated requesting anonymity.

They stated the federal government would look at the order rigorously and additional applicable motion can be taken after acquiring authorized opinion, together with, difficult the award by submitting of an software earlier than the suitable court docket in Singapore, which is the seat of the arbitration.

An worldwide arbitration tribunal on September 25 dominated in favour of Vodafone and held that the tax demand raised by the Indian Income-Tax Department on the idea of the retrospective modification is in violation of the India-Netherlands Bilateral Investment Promotion Agreement (BIPA).

According to sources, the tribunal has directed India to bear 60% of value incurred by Vodafone in the direction of authorized illustration and help, which involves 43,27,294.50 kilos and 50% of the charges paid by Vodafone to the appointing authority, which comes to three,000 Euros, they stated.

“Thus, the total cost of reimbursement works out in Indian rupees to around Rs. 40 crore. In addition, an amount of Rs. 44.74 crore collected from Vodafone needs to be refunded in pursuance of the order of the Arbitration Tribunal. Thus, the total outgo on account of this award is estimated to be around Rs. 85 crore,” one of many officers stated.

It could also be famous right here that in February 2007, Vodafone International Holding (a Netherland Company) had bought 100% shares of CGP Investments (Holding) Ltd (CGP Ltd.) (a Cayman Islands Company) for $11.1 billion from Hutchison Telecommunications International Limited. CGP Ltd. not directly managed 67%of Hutchison Essar Limited (HEL Ltd.) — an Indian Company. Hence, by this acquisition, Vodafone acquired management over an Indian firm -Hutchison Essar Limited.

Officials stated it was argued by Vodafone that this transaction was not responsible for tax in India because the asset transferred i.e. shares of CGP Ltd are the shares of the Cayman Island Company and therefore was not shares of an Indian firm. The Income Tax Department felt that such oblique switch was designed solely to keep away from capital achieve tax in India, it raised a requirement of round Rs 7,900 crore by holding that the stated switch of shares of CGP Ltd. concerned oblique switch of Indian belongings, i.e., shares of an Indian firm (HEL Ltd).

Vodafone challenged the order earlier than the Bombay High Court which upheld the order of the Income Tax Department. Vodafone subsequent challenged the order earlier than the Supreme Court. The Supreme Court in 2012 gave the judgement in favour of Vodafone, holding that such oblique switch of belongings isn’t taxable below current provisions of the Income Tax Act.

Finance ministry officers stated to cease the abuse and plug loophole of such oblique switch of Indian belongings and in addition because the intention of the related provisions of the Income Tax Act was all the time to tax oblique switch of Indian belongings, the Finance Act, 2012 made an modification to particularly make clear that oblique switch of belongings positioned in India have been all the time taxable below the Income Tax Act.

“With this amendment, the demand on Vodafone revived,” a second official stated.

Later, Vodafone invoked worldwide arbitration below the Bilateral Investment Promotion and Protection Agreement (BIPA) between India and the Netherlands. The Indian authorities defended its place saying that it has sovereign proper to tax capital achieve on switch of belongings positioned in India and is properly inside its proper to take all measures to cease avoidance of taxes by oblique transfers by tax havens, officers stated.

“The Parliament rightly clarified its intent through an amendment in the Income Tax Act and, therefore, such measure cannot be opposed by simply labelling it as a retrospective amendment,” the second official stated.

“The question is should the government of India have allowed such loopholes to continue? The answer is obviously no. It is duty bound to take all steps to protect public money and exchequer and if there is any attempt to avoid the taxes by routing the transaction through a tax haven like Cayman Island, it is entitled to take all measures including amendment in law to stop such abuse,” he stated.