Vodafone Group has won against the Indian government at the international arbitration court where it opposed the country’s demand to pay $2 billion towards the telecom giant’s $11 billion purchase of Hutchison Whampoa in 2007.
The Indian government has demanded $3.79 billion including about $2 billion in tax, as well as interest and penalties. While India’s apex court ruled against the government, the body tweaked arbitrary laws to enable it to claim taxes for the deals that had already been completed.
Vodafone moved to arbitration proceedings against India in 2014.
Now, the international arbitration tribunal has deemed the Indian government’s claim for tax as a breach of an investment treaty agreement between India and the Netherlands. the court directed India to not only stop seeking the dues from Vodafone but also to pay $5.47 million to the telecom operator as compensation towards its legal costs.
The Indian government has been involved in numerous international arbitration cases including with the likes of Cairn Energy, over retrospective taxation claims and cancellation of contracts. It could cough up billions of dollars if it ends up losing those cases.
The government has reviewed its previous stance on the matter and has worked with more than 50 countries to terminate treaties which could lead to similar international arbitration situations. It is also been working on much more investor-friendly legislation to protect foreign investors by offering relief from possible policy changes even as it retains the right to tax them.
Retrospective taxation is a provision wherein the government makes changes to the current tax rules or provisions to place an additional tax or levy on a transaction which is already concluded in the past.