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