Government weighs legal options in Vodafone tax arbitration case

The government is now considering legal options after losing the battle with Vodafone in the much-discussed international tax arbitration (arbitration) case. Not only Vodafone, the government is also having a similar case with Cairn Energy. The government is also considering options in the event of going against the decision in this case, so that the loss can be minimized.

Last month, an international arbitration court ruled that the Indian government’s demand for payment of tax of Rs 22,100 crore from telecom giant Vodafone through old tax laws was a violation of the guarantee of fair and equitable treatment. This guarantee has been given under a bilateral investment protection agreement between India and the Netherlands.

Consider challenging this decision before a court in Singapore

Sources in the finance ministry said that the government is considering challenging the decision before a court in Singapore. The government will take a legal opinion about it and decide. In this case the cost is quite limited. The government will have to pay only 85 crore rupees to Vodafone as legal costs. However, the government is also considering a separate arbitration case related to Britain’s Cairn Energy plc.

Also read: Vodafone wins Rs 20,000 crore retro tax case against Indian government

If a separate arbitration panel outlawed the demand for Rs 10,247 crore through the old laws, the government would have to pay Cairn $ 1.5 billion or Rs 11,000 crore. This amount will be equal to the value of the shares of Cairn which were sold by the government for tax collection. It also includes dividends and forfeited tax refunds. Sources said that in February 2007, Vodafone International Holding (a Netherlands company) bought 100 percent shares of the Cayman Islands company CGP Investments for $ 11.1 billion. With this, he has indirectly owned Indian company Aitchison Essar Ltd. 67 percent of the control had come.

What is the matter

The tax department believed that the deal was done to save capital gains tax in India. The department then demanded payment of tax from the company. In 2012, the Supreme Court rejected the government’s demand. The legislation was amended in 2012 to prevent such indirect transfers of Indian assets and make such transfers taxable in India. Vodafone was then demanded to pay the tax afresh.

Sources said the case for tax demand from Cairn Energy is different. It is a demand related to capital gains made by the company transferring Indian assets to a new company and listing them on the stock exchanges. Dheeraj Nair, partner of J Sagar Associates, believes that the government should challenge the verdict in the Vodafone case as it may have an impact on other arbitration matters as well. He said that the dissatisfied party has the right to challenge the verdict. In this way it is justified to challenge the verdict.


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