India has challenged an international tribunal’s verdict in favor of UK telecommunications giant Vodafone Group in a case involving a claim by Indian income tax authorities in Singapore for government sources for Rs 20,000.
The challenge is directed against the arbitration award of the Permanent Arbitration Court in The Hague, according to which the retroactive legislation violates the guarantee of fair and equitable treatment guaranteed in the bilateral investment agreement. The tribunal had also asked the government to end such violations of the international treaty.
The government believed that the award should be challenged because it challenged a state’s right to levy taxes, not to claim taxes. A decision to challenge was made at the highest government level.
In another blow, New Delhi lost another arbitration case related to the retrospective tax change against Cairn Energy Plc, in which the tribunal called on the government to pay over $ 1.2 billion in damages, plus interest and legal fees.
The Vodafone Tribunal also ordered India to reimburse £ 4.3 million and € 3,000 in legal costs. The government’s total liability was Rs 85 billion, of which Rs 45 billion, collected for tax purposes, was to be reimbursed.
In 2012, the government retrospectively changed its laws to tax offshore deals in Indian assets after they were foiled by the Supreme Court, allowing the tax to be levied retrospectively on Vodafone.
Vodafone acquired a majority stake in Hutchison Essar in 2007 through a foreign purchase valued at $ 11.2 billion. The Indian tax authority said Vodafone should have withheld tax on the deal and issued a notice requesting rupees 11,218, which was later supplemented with fines of rupees 7,900. Vodafone appealed the income tax return and won the case in Apex Court. However, the government retrospectively changed the income tax law in 2012, after which the company sought international arbitration on the matter.
Retroactive taxation: India loses arbitration against Cairn Energy but continues to prosecute Vodafone
Appeal the verdict
India has stepped up its stance against Vodafone by challenging a previous arbitration ruling by the Permanent Court of Arbitration in The Hague that found retroactive legislation violates the guarantee of fair and equitable treatment guaranteed in the bilateral investment treaty.
The tribunal had also asked the government to end such violations of the international treaty.
It was the 2012 change that retroactively brought indirect overseas transfers into the tax network. According to the Treasury Department, the tax authority was required to protect public funds when attempts were made to avoid taxes by routing transactions through tax havens.
“Parliament rightly clarified its intention by amending the Income Tax Act, and therefore such a measure cannot be contradicted by simply marking it as a retrospective change,” the person said. “The question is whether the Indian government has allowed such loopholes to remain. The answer is obviously no. ”
If an attempt is made to avoid taxes by channeling transactions through a tax haven like the Cayman Islands, the government is entitled to take any action, including changing the law, to stop such abuse, a source had said at the time. The Vodafone-Hutchison deal was concluded in the Cayman Islands.
Vodafone acquired a majority stake in Hutchison Essar in 2007 through a foreign purchase valued at $ 11.2 billion. The Indian tax authority said Vodafone should have withheld tax on the deal and issued a notice requesting rupees 11,218, which was later supplemented with fines of rupees 7,900.
Vodafone appealed the income tax return and won the case in Apex Court. However, the government retrospectively changed the income tax law in 2012, after which the company sought international arbitration on the matter.
Cairn Energy Plc announced on December 23 that it had won arbitration against the Government of India over a tax dispute arising out of the Tax Department’s request for a 2007 listing of Indian operations for $ 1.2 billion results.
The oil major said the tribunal unanimously announced the award, requiring the Indian government to pay the UK-based company $ 1.2 billion in damages and interest.
The Cairn Energy case
Cairn Energy filed a lawsuit in 2015 against the tax department’s claim of Rs.10,247 billion related to the group’s reorganization in 2006. The Income Tax Department stated that Cairn UK Holdings, a wholly owned subsidiary of Cairn Energy, had made capital gains of over Rs 24,000 prior to the listing of Cairn India.
They said Cairn Energy effectively held 69% of Cairn India. In 2011 Cairn India was sold to the Vedanta Group with the exception of 9.8%. The residual sale of the shares has been closed by the income tax department and Cairn India’s dividend payments to Cairn Energy have also been frozen.