Vodafone Vs IT Department Tax Dispute-Timelines

Vodafone Group PLC is now relieved to a great extent. The ruling of the Permanent Court of Arbitration based in Hague, supports the company’s stance that there was no tax liability on its part in the acquisition of Hutch Essar Ltd from Hutchison Telecommunications International Limited (HTIL). The legal battle that prolonged for around thirteen years between the IT Authorities of India and Vodafone was one of the keenly watched legal battles.

The battle began in 2007. This article covers the important timelines in Vodafone Vs IT Department tax dispute.

Please Click Vodafone Vs IT Department-HEL Acquisition for details of the dispute

May 2007-  Vodafone International Holdings BV brought the controlling stake in Hutchison Essar Ltd, an Indian company in telecom sector from Hutchison Telecommunications International Limited (HTIL).  The deal was between the Dutch affiliate of the Vodafone Group, Vodafone International Holdings B.V and Hutchison Whampoa, Cayman Island~ based company. Hutchison Whampoa, was a wholly owned subsidiary of the Hutchison Telecommunications International Limited (HTIL).

September 2007 – The Indian income tax authorities issued a notice demanding payment of $2.2 billion as capital gains tax from Vodafone Group PLC, citing the responsibility of the group to deduct tax on Capital Gains received by HTIL.

Please watch the video to understand the overall aspects of the issue

Vodafone Group contended that it was not liable to pay any amount as the transaction between HTIL and Vodafone did not involve the transfer of any capital asset situated in India and that the deal was carried out at offshore.

September 2010 – As IT Department chased Vodafone, the group approached the High Court of Bombay which held Vodafone liable to pay the tax.

January 2012- The company appealed before the Supreme Court and the court held that the steps by the company were ‘within the ambit of the law’ and cancelled the judgement of the Bombay High Court.

However, the Indian government was keen on recovering the Rs 20,000 crore in unpaid taxes, interest and penalty.  General Anti-Avoidance Rule (GAAR), an anti tax avoidance law, was proposed in the Direct Tax Code 2009, targeting at arrangements or transactions made specifically to avoid taxes. This was inserted under  Chapter X-A of the Income Tax Act, 1961 of India. This amendment was formulated by the Department of Revenue under the Ministry of Finance.

March 16, 2012- The Union Budget, an amendment to the Income Tax Act was inserted, specifying that income arising from sale of shares or units shall be deemed to accrue or arise in India if transfer of a share or other interest in a company or entity had taken place outside India, and the value of the share or unit depended primarily on assets in India. The amendment was made retrospectively from 1962 (when the law had come into effect) thereby making all transactions taken place ever since under the ambit of the law. This amendment, in effect overruled the Supreme Court order and made Vodafone liable once again. Seizing the opportunity, the revenue officials began to chase Vodafone again, though the implementation was getting postponed repeatedly.

April 2014- Vodafone Group moved the Permanent Court of Arbitration in Hague.

September 25, 2020 – The Court of Arbitration ruled in favour of Vodafone Group Plc stating that the tax liability on Vodafone is a breach of the investment treaty signed between India and the Netherlands. It described the act of India’s Income-Tax Department as a breach of ‘fair and equitable’ treatment. As per the ruling, India must stop seeking dues from Vodafone and   pay over Rs. 40 crore as partial compensation for legal costs. The IT Department is also bound to refund about Rs.45 crore that was collected as tax from Vodafone.