Vodafone International Holdings BV v. India (PCA Case No. 2016-35)
Vodafone in 2007 acquired 67% stake in an Indian company named ‘Hutchison Whampoa ltd’ The Indian revenue authorities imposed tax on the same despite the fact that the transaction was an offshore transaction and among two non- residents. The Indian revenue authorities levied approximately Rs. 20,00 crore capital gains tax on Vodafone.
The issue raised was regarding the jurisdiction of the Indian Revenue authority to perform such actions. The action taken by the authority was challenged before the Supreme court of India in Vodafone International Holding (VIH) v. Union of India (UOI). The judgement favoured Vodafone after which there were attempts of mediation among the parties. Failure of which led to arbitration suits among the parties in 2014.
Vodafone claimed that the action taken by the Government of India was violative of fair and equitable treatment as stated in Article 4 of India- Netherlands Bilateral Investment Treaty.
And the Government claimed that the new tax reform- the Finance Bill, 2012 which came after the SC’s verdict allowed the addition of explanation in Section 9 of the Income Tax Act included such transactions and the same ought to have a retrospective effect on the deals.
As of now, the treaty stands terminated. The Permanent Court of Arbitration, Hague at last declared the award in favour of Vodafone. The government of India has to not only pay the company a huge amount of compensation but also 60% of the legal costs unless the government opts for further appeal.
Effects of the Vodafone – India case
(This is for another short post- don’t merge with above)
India’s Bilateral Investment Treaties with other countries are in danger since the recent arbitral award will attract other countries/parties to invoke the ‘fair and equitable treatment’ (FET) clause.
This is to the extent that any law imposed by India amounts to violation of the FET clause. For instance the award will be relied on in the disputes in the following BITs
- Russia-India BIT
- Australia-India BIT