Why in News ?

Vodafone wons international arbitration case against the Indian government, ending one of the most high-profile disputes in the country involving a $2 billion tax claim.

What was the case ?

• One of the most controversial disputes in India under international treaty agreements that it enters into with countries to protect foreign investments.
• The proceedings were initiated by Vodafone back in 2014
  • The agreement that Vodafone’s Netherland entity entered into with Hutchison Telecommunications to buy its share of 67% interest in an Indian company Hutchison Essar for $11 billion.
  • Two years after the then UPA government introduced retrospective amendments to Indian income tax law.
  • Subsequent to this transaction, India’s tax authorities slapped a capital gains tax of $2.2 billion on Vodafone.
  • The law allowed it to continue to raise its tax demand despite a Supreme Court order that brought relief to the company.
  • The telecom firm has argued that such a move violated the principles of equitable and fair treatment under the treaty.
• In 2012, India’s top court ruled in favour of the telecom provider but the government changed the rules to enable it to tax deals that had already been concluded.
• In 2014, Vodafone initiated arbitration proceedings against India.

Recent Verdict

• International arbitration tribunal in The Hague ruled that 
  • India’s imposition of a tax liability on Vodafone, as well as interest and penalties were in a breach of an investment treaty agreement between India and the Netherlands.
  • Thus Vodafone wons international arbitration
• India had claimed a total of ₹279 billion ($3.79 billion), including about $2 billion in tax, as well as interest and penalties.
• It also directed India to pay $5.47 million to the company as compensation for its legal costs.
• Any attempt by India to enforce the tax demand would be a violation of India’s international law obligations.

Implication of the Verdict

• India is entangled in more than a dozen such cases against companies, including Cairn Energy, over retrospective tax claims and cancellation of contracts.
• The exchequer could end up paying billions of dollars in damages if it loses.
• To reduce future arbitration claims India has ended such agreements with over 50 countries
  • Currently working on a new law to protect foreign investors by offering relief from possible policy changes even as it upholds the right to tax them.

Source : The Hindu

Topic

GS II : Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests

Current Affairs Compilation : 26 September 2020