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EXPLAINED: THE CASE OF RETROSPECTIVE TAXATION BETWEEN INDIA AND VODAFONE

EXPLAINED: THE CASE OF RETROSPECTIVE TAXATION BETWEEN INDIA AND VODAFONE

Context

The Permanent Court of Arbitration (PCA), an intergovernmental organization located in The Hague, Netherlands has given its verdict that India’s retrospective imposition of a tax on Vodafone Group was a breach of the Bilateral Investment Treaty with the Netherlands and the arbitration rules of United Nations Commission on International Trade Law (UNCITRAL).

About the case

  • The British telecommunication company Vodafone Group had bought a 67% stake in a company called Hutchison Whampoa in May 2007.
  • Under the Income Tax Act of 1961, the Indian government for the first time demanded capital gains and to withhold tax from Vodafone.
  • Vodafone should have deducted the tax at source before making a payment to Hutchinson was the argument of the government.
  • In 2012, the Supreme Court gave a decision in favour of the Vodafone Group.
  • The Finance Act was amended (2012) giving the Income Tax Department the power to retrospectively tax such deals.
  • In 2014, Vodafone invoked the Bilateral Investment Treaty signed between India and the Netherlands in 1995.
  • Finally, the verdict has come in favour of Vodafone and the government must stop taking the dues from Vodafone.

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