InvestorQ : What are the next steps the government is planning on the Vodafone PLC order?
Dia Deshpande made post

What are the next steps the government is planning on the Vodafone PLC order?

swati Bakhda answered.
2 years ago

The recent decision by the Hague Court upholding the case in favour of Vodafone PLC in the tax issue, has come as a big challenge for the government. Here is what you need to know.

· Last week, the International Arbitration Court, Hague, ruled in favour of Vodafone PLC in the retrospective capital gains tax case saying that the government of India did not have the legal right to charge Rs.22,100 crore as capital gains tax from Vodafone PLC.

· Indian government has been seeking tax dues worth Rs.22,100 crore from Vodafone PLC towards capital gains on the sale of stake in Hutch India to Vodafone PLC in the year 2007. Subsequently, Hutch India was rechristened as Vodafone India.

· The government contention was that the deal was routed through the Netherlands only to evade paying capital gains tax on the transaction and hence while in form it may not attract capital gains tax, in substance it still should attract capital gains tax.

· A similar case had been struck down by the Indian courts, post which the government in 2012 had passed the GAAR bill in the Union Budget which allowed the Indian government to charge retrospective tax on such cases.

· However, the International Arbitration Committee or IAC has now ruled that the government decision to tax was in contravention of the bilateral investment pact between India and the Netherlands.

· While the government pays nothing in the Vodafone PLC ease, except some minor costs, it may be required to pay Rs.10,300 crore to Cairn India PLC in a similar deal where Cairn Energy PLC had sold Cairn India to Vedanta. Here, the government had impounded the Vedanta shares allotted to Cairn PLC and sold in the market to recover dues. That is what is making the government of India jittery.

· The government still has options open in front of them as it can challenge the award in a court in Singapore, which was the seat of arbitration. The government is expected to crystallize its stance in the next few days after seeking legal opinion.