Vodafone International Holdings BV had invoked Clause 9 of the Bilateral Investment Treaty (BIT) signed between India and the Netherlands to challenge the retrospective amendment to tax capital gains of Rs 22,100 crore. In a unanimous decision, the Permanent Court of Arbitration at The Hague has held that the retrospective demand was “in breach of the guarantee of fair and equitable treatment”. The court has also asked India not to pursue the tax demand any more against Vodafone Group.
In Vodafone International Holdings BV (The Netherlands) v. India PCA Case No. 2016-35, the Permanent Court of Arbitration has held as follows in the award:
363. After deliberation, and for the reasons of fact and law set out above, the Tribunal decides as follows:
(1) The Tribunal has jurisdiction, under the terms of the Agreement between the Kingdom of the Netherlands and the Republic of India for the Promotion and Protection of Investments, done at The Hague on 6 November 1995, to consider the Claimant’s claims for breach of the Agreement.
(2) The Claimant is entitled, in respect of its investments in mobile telecommunications in India, to the protection of the guarantee of fair and equitable treatment laid down in Article 4(1) of the Agreement.
(3) The Respondent’s conduct in respect of the imposition of the Claimant of an asserted liability to tax notwithstanding the Supreme Court Judgement is in breach of the guarantee of fair and equitable treatment laid down in Article 4 (1) of the Agreement, as is the imposition of interest on the sums in question and the imposition of penalties for non-payment of the sums in question.
(4) The finding of breach in paragraph (2) entails the obligation on the Respondent to cease the conduct in question, any failure to comply with which will engage its international responsibility.
(5) In the light of the above findings, it is not necessary for the Tribunal to proceed to a determination of the Claimant’s other claims.
(6) The costs of the arbitration will be borne equally between the Parties.
(7) The Respondent will reimburse to the Claimant the sum of £4,327,294.50 or its equivalent is US Dollars, being 60% of the Claimant’s costs for legal representation and assistance, and €3,000 or its equivalent in US dollars, being 50% of the fees paid by the Claimant to the appointing authority.
In response, the Central Board of Direct Taxes has issued a press release which reads as follows:
Government of India
Department of Revenue
Ministry of Finance
Central Board of Direct Taxes
New Delhi, 25th September, 2020
Note in the Vodafone Award matter
Finance Ministry has said today that it has just been informed that the award in the arbitration case invoked by Vodafone International Holding BV against Government of India has been passed. The Government will be studying the award and all its aspects 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 fora.
Commissioner of Income Tax
(Media &Technical Policy)
Official Spokesperson, CBDT