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Vodafone Wins Arbitration Against India In Tax Dispute Case

Vodafone Group Plc has won the international arbitration case against Indian government in a $2billion retrospective tax dispute case on Friday in Hague at the Permanent Court of Arbitration. The Tribunal ruled that the Indian Government’s tax imposition on Vodafone is in breach of “fair and equitable” treatment. The Arbitration Tribunal has directed the Indian Tax Department to cease seeking the dues from the company and also pay INR 40 crores as a partial compensation for the legal costs.

Initially, in 2007, the Indian Government demanded a tax of Rs.7990 Crores from Vodafone for failing to deduct tax on Capital Gains made over its acquisition of 67% stake in a Hong Kong based company Hutchison Whampoa for $11billion. The India Government also claimed that the company failed to pay the Tax Deduction at Source (TDS) as per Income Tax Act,1962 and added the interest and penalties and demanded a total of Rs.20,000 crores from Vodafone.

In 2012, the Supreme Court of India had ruled the case in favour of Vodafone after which the government had amended the Income Tax Law that gave it(Government) the power to put the liability on Vodafone “retrospectively”. Such an amended law also affected many foreign companies for investing in India. In 2013, Vodafone had invoked India-Netherlands Bilateral agreement treaty seeking resolution to the tax imposed on it to sidestep the Supreme Court’s judgement which was in favour of the company.

In 2014, Vodafone initiated Arbitration proceedings against India. Conciliation proceedings were also initiated to resolve the dispute but differences led to the breakdown after which Arbitration was initiated. The company in 2017 said that the International Tribunal would begin a trial on the company’s challenge to India’s retrospective legislation to seek Rs20,000 crore taxes. Vodafone was represented by DMD advocates in the Hague court.

India is caught up in more than a dozen International Arbitration cases against foreign MNCs including Cairn Energy, over retrospective tax claims and cancellation of contracts. If India loses, it ends up paying thousands of crores as damages.

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- BY Sowmya Sastry

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