PremiumThe finance ministry said on Friday it will consult its legal counsels on the tax dispute with Vodafone International Holding BV for deciding the next course of action after an international court of arbitration gave its verdict.
News agency Reuters reported on Friday that Vodafone Group Plc had won an international arbitration case against the Indian government in the high-profile dispute involving a $2 billion tax claim.
The ministry said that it has just been informed that the award has been made in the arbitration case invoked by the company and that it will be studying all aspects of it carefully in consultation with its counsels. “After such consultations, the government will consider all options and take a decision on further course of action including legal remedies before appropriate for a," the statement said.
A person aware of the matter said that a quick look on the award in the arbitration case makes it is clear that no damages have been awarded against the government of India. The person said that the government of India has been asked to pay only 4.3 million pounds, that is, about Rs. 40 crore rupees which is 60% of the tribunal’s administrative cost while the rest 40% of the cost would be borne by the Vodafone.
“Also, Government of India may have to refund the tax collected, which is about Rs. 45 crore, only if it does not go for appeal against the award. Therefore, the total outgo would be around Rs. 85 crore only," said the person, who spoke on condition of anonymity.
A decision on the government’s response, however, could hinge on strategic and economic considerations about the investment climate at a time the government is taking steps for improving ease of doing business and boost investments.
The case refers to India’s controversial retrospective amendment to Income Tax Act in 2012. In January 2012, the Supreme Court ruled that Vodafone Group Plc’s $11 billion offshore deal acquiring Hutchison Essar Ltd.—later renamed Vodafone India Ltd.—was not taxable in India. In the Finance Act that year, the government sought to amend the law to clarify that such deals have always been taxable in Indian even if executed overseas. The tax dispute eventually went into international arbitration.
