Vodafone wins €3bn India tax battle

Vodafone wins in retroactive tax case against India

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In a unanimous decision, the Permanent Court of Arbitration at The Hague on Friday ruled that India’s retrospective demand of Rs 22,100 crore as capital gains and withholding tax imposed on the UK telecommunication company for a 2007 deal was “in breach of the guarantee of fair and equitable treatment”.

The dispute had overshadowed Vodafone’s growth plans in India and soured attitudes toward foreign investment in the country for a long period of time. Vodafone has since merged its Indian business with rival Idea and written off the value of its operation in the country.

In 2007 the group acquired a majority stake in Hutchison Essar, India’s second-largest mobile phone network at the time, for £7.1bn using a Netherlands-based company to complete the deal. The acquisition represented the British company’s last big overseas foray as it looked to the fast-growing Indian economy to revive its growth strategy. But it was quickly drawn into the dispute over tax.

Despite winning its case in the Indian Supreme Court in 2012, the group continued to be pursued for retrospectively applied tax payments, with interest and penalties layered on top. The two parties agreed to international arbitration in 2017 to decide whether the UK company was liable.

The case was heard in The Hague but the seat of arbitration, which establishes the legal jurisdiction in which a dispute is judged and is where an award can be challenged, was Singapore.

“Vodafone confirms that the investment treaty tribunal found in Vodafone’s favour,” the group said. “This was a unanimous decision, including India’s appointed arbitrator Mr Rodrigo Oreamuno. The tribunal held that any attempt by India to enforce the tax demand would be a violation of India’s international law obligations.”

Shares in Vodafone Group, which has pledged not to invest more equity into India, were down 0.7 per cent in lunchtime trading on Friday but shares in Vodafone Idea, its listed Indian mobile network, rose 12 per cent.

The court ruled that Vodafone was entitled to fair and equitable treatment due to a bilateral protection treaty between the Netherlands and India. Demands for payments, including interest and penalties, were in breach of that guarantee according to the court. Indian authorities could opt to challenge the ruling, or amend the law that allowed retrospective payments dating back until the 1960s to be sought.

“The government has a massive majority [so] they can do it if they want. It will really help in boosting investor sentiment,” said Anuradha Dutt, one of the lead lawyers from DMD Advocates in New Delhi, which represented Vodafone along with Skadden.

India’s finance ministry said:

“The government will be studying the award and all its aspects carefully in consultation with our counsels. After such consultations, the government will consider all options and take a decision on further course of action including legal remedies before appropriate fora.”

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