Government Challenges Vodafone Arbitration Ruling in Singapore Court: Report

India has challenged an international arbitration tribunal’s ruling on a $ 2 billion tax claim against Vodafone Group Plc in Singapore, a senior government official told Reuters on Thursday on condition of anonymity.

The British telecommunications giant Vodafone Group plc won an arbitration against the Indian government in September this year over a claim for taxes of 22,100 rupees under retrospective legislation. An international arbitration tribunal ruled that India’s demand for earlier taxes violates fair treatment under a bilateral investment protection pact.

The center then announced that it would review the award and decide on its future course of action.

The tax dispute, which includes interest of 12,000 crore and 7,900 crore in the form of penalties, is due to the acquisition of Vodafone’s Indian cellular assets from Hutchison Whampoa in 2007. The government said Vodafone was required to pay taxes on the acquisition, which the company denied.

The tax authorities had informed Vodafone International Holdings BV (VIHBV) in September 2007 that they would not transfer the withholding tax to Hutchison Telecommunications International Ltd. deducted consideration paid. Vodafone challenged this before the Supreme Court and overturned it in January 2012. The transaction is not taxable in India, so the company is not required to withhold taxes.

In May of this year, Parliament passed the 2012 Finance Act, which retrospectively amended various provisions of the Income Tax Act of 1961 to tax any gains on the transfer of interests in a non-Indian company that had a significant value on the underlying Indian assets derive.

A tax return for Rs 14,200 was served on the company in January 2013 after interest was included on the principal. A year later, Vodafone questioned the tax claim under the Dutch BIT. Sources said the company served the notice of arbitration in April 2014 after out-of-court dispute settlement talks failed.

The tax department issued a demand notice in February 2016 for Rs 22,100, including interest accrued since the date of the original claim. Vodafone has consistently stated that it has no liability and that it “will continue to vigorously defend claims that VIHBV or Vodafone India Ltd are liable to tax in connection with the transaction with Hutchison and continue to exercise all rights of redress”.

In addition to Vodafone, the Indian government also used the retrospective tax legislation to charge UK oil producer Cairn Energy Plc Rs 10,247 billion to restructure its Indian operations in 2006.