Vodafone moves ICJ over India tax dispute
Sources state that British telecom giant Vodafone has moved the International Court of Justice seeking arbitration over its Rs.14,200-crore tax dispute with India. India had appointed Rodrigo Oreamuno as arbitrator for the case, while Vodafone named Canadian trial lawyer Yves Fortier. However, the two sides failed to reach a consensus on selection of a neutral judge to preside over the arbitration.
In 2007, Vodafone International Holdings BV decided to expand its footprint in the Indian mobile phone market by buying out Hutchison Essar. Vodafone bought out Hutchison's 67% stake in its telecom JV in India for $11 billion through a subsidiary in the Cayman Islands. Vodafone officials stated that since the transaction was not on Indian soil, it did not need to pay taxes.
Vodafone did not want to pay taxes as the deal was signed in the tax-heavan the Cayman Islands. However, Indian officials state that since the deal involved properties in India, they had to pay capital gains tax.
In September 2007, the IT department issued a show cause notice to Vodafone. Vodafone in turn filed a writ petition in the Bombay HC, challenging the IT Department's jurisdiction in the case. The Bombay HC ruled in favour of the IT Department, and asked Vodafone to pay the taxes that were due. Vodafone approached the Supreme Court in 2009 for arbitration on the case.
In January 2012, the Supreme Court ruled that since both companies involved were foreign entities, and the deal was brokered and signed on foreign soil, the Indian Income Tax Department had no jurisdiction over the case.
Finance Minister Pranab Mukherjee announced the proposal for the General Anti-Avoidance Rule, during his budget speech for the 2012-13 Union Budget. The rule was aimed at curbing tax violations in India. It provided for retrospective taxation on tax defaulters spanning back to cases and deals made as long back as 1962. The proposed rule spooked market sentiments and was likely to affect capital inflows.
Though proposed in 2012, the GAAR was never implemented and was post-poned for several years; most recently by Finance Minister Arun Jaitley in 2015, who said that it would need atleast 2 more years to come into effect.
Addressing the business leaders of France and French President Francois Hollande, PM Modi said retrospective taxation is a thing of the past and the chapter will never be opened again in India. The statements were made to address concerns of foreign investors over India's tax regime. The statement brought relief to several foreign companies including Vodafone who face tax disputes with India's IT Department.
The income-tax department has again asked the UK-based Vodafone Group Plc to pay Rs.14,200 crore in tax dues. Further, the IT Department added that it would seize all Vodafone assets in India in case of non-payment. The move damages the goodwill garnered by PM Modi, who has been attempting to make India a more investment friendly destination for global industry giants.
