Vodafone Group Plc-govt case: Govt may need to distribute Rs 85 cr if it decides to not appeal
Rs 45 crore towards tax collected from Vodafone Group Plc,Rs 40 crore towards administrative cost charged by tribunal.
As per Finance Ministry sources, since Vodafone Group Plc had not paid the initial tax demand of Rs 7,900 crore and interest and penalty thereon , the question of India return Rs 22,100 crore didn’t arise
Rs 85 crore — this is able to be the Centre’s liability should it plan to not appeal against Friday’s ruling of the Permanent Court of Arbitration within the Rs 22,100-crore tax dispute with Vodafone Group Plc. The arbitration tribunal ruled in favour of Vodafone Group against India’s retrospective demand of capital gains tax. Of the Rs 85-crore outgo, Rs 45 crore are going to be towards the tax collected from Vodafone thus far and Rs 40 crore, or 4.3 million British pound , towards the executive cost charged by the tribunal.
According to Finance Ministry sources, since Vodafone had not paid the initial tax demand of Rs 7,900 crore and interest and penalty thereon , the question of India return Rs 22,100 crore didn’t arise. Further, the tribunal has not accepted the claim of Vodafone for award of damages, sources added.
The issues, however, are expected to happen for Indian government at another level, with the likelihood of other pending cases under arbitration following suit because the Vodafone case, experts said. “Vodafone’s win within the arbitration against the govt within the retrospective taxation of indirect transfers is extremely significant because it may cause other similarly placed companies to hunt arbitral reliefs. While many bilateral investment treaties are scrapped by Government or modified to not cover taxation within their ambit, this space is probably going to witness further action,” Kumarmanglam Vijay, Partner, J. Sagar Associates said.
They also said that if the govt of India doesn’t plan to implement the ruling, Vodafone Plc can seek remedial action for implementation by approaching Indian courts. “The Government of India will got to take a view thereon , whether to simply accept it or not. Or to hunt some kind of review. And, if the govt doesn’t plan to implement it, then Vodafone can seek remedy in Indian courts,” former Central Board of Direct Taxes (CBDT) Member Akhilesh Ranjan said.
India is bogged up in several international arbitration cases including some on account of retrospective tax claims against companies like Cairn Energy. the corporate is seeking full restitution for its losses totalling over $1.4 billion resulting from India’s expropriation of its investments in India in 2014. The Centre also features a diary for challenging arbitration rulings. the govt had appealed against the $476-million arbitration awarded to Vedanta and Videocon in 2011, but this was turned down by the Supreme Court. Arbitration proceedings had resulted during a $476-million award to Vedanta and Videocon concerning the Ravva oil and gas fields that that they had jointly developed within the 2000s. As per the Malaysian Arbitration Act, 2005, a gift (the decision of the arbitration) was pronounced in favour of the respondents on January, 2011.
In July 2014, presenting the Budget, then minister of finance Arun Jaitley had said that the NDA government won’t retrospectively create a fresh liabilities which all fresh cases arising out of 2012 retrospective amendments are going to be scrutinised by a high-level committee before any action is initiated. “…consequent upon certain retrospective amendments to the tax Act 1961, undertaken through the Finance Act 2012, a couple of cases have come up in various courts and other legal fora. These cases are at different stages of pendency and can naturally reach their logical conclusion,” Jaitley had said.
The government’s stated intent has been that investment treaties shouldn’t cover tax matters, one among the explanations for objection to the arbitration during this case since it had been covered under the Bilateral Investment Treaty (BIT) was unacceptable thereto during this case was because it had been and not the tax treaty. Since then, the govt has modified nearly 60 such treaties to exclude taxation matters.
“BITs entered by India within the past were wide enough to hide tax issues. This was something which India wasn’t comfortable with and thus India came out with a model Bilateral Investment Treaty in 2015 which overlooked tax and most favored nation clause among various other changes…However, the new model BITs have found few takers with some countries like Bangladesh getting into the BITs supported the 2015 model. Going forward, this decision won’t end in more companies choosing this approach as most BITs have already been terminated by India,” Amit Maheshwari, partner, AKM Global said.
