Trust Bloomberg Tax's Premier International Tax offering for the news and guidance to navigate the complex tax treaty networks and business regulations.
By Siri Bulusu
An Indian high court has opened the door for Vodafone to dispute a $1.8 billion tax bill before an international tribunal—a move that will test India’s domestic tax laws against bilateral investment treaties.
The High Court of New Delhi passed a ruling May 7 stating that the court won’t intervene and block Vodafone’s attempt at simultaneously invoking international arbitration proceedings under both the U.K.-India and Netherlands-India investment treaties, since that power is reserved only for “very compelling” cases.
The high court’s landmark dismissal of the Vodafone case could embolden other multinationals to seek international arbitration under investment treaties to settle ongoing tax demands, practitioners said. The development is an escalation of a years-long dispute between the telecommunications company and the India tax authority.
“While the court said they reserve their jurisdiction over such matters for a compelling case, they gave no examples—and any other company facing a tax dispute could take benefit from that language,” Chetan Daga, director of chartered accounting firm B.K. Khare & Co., told Bloomberg Tax May 8.
The outcome of the proceedings may not necessarily set a legal precedent like a court decision, because the panel operates more like a negotiation, Daga said. Still, the outcome of the Vodafone case will likely impact the way other companies approach tax remedies under various treaties once they’ve exhausted domestic tax remedies.
“Vodafone fought this case all the way to the Supreme Court—there is no domestic law left to them so they’re forcing India to recognize that this is a matter that should be heard before the arbitration panel,” Daga said.
Vodafone Group Plc’s tax dispute with the Indian government dates to 2007 when Vodafone acquired India-based telecommunications company Hutchison Essar Ltd. through a Cayman-Islands based subsidiary. Indian tax authorities claimed the underlying assets of the shares transferred derived value in India, and slapped Vodafone with a 120 billion rupee ($1.8 billion) tax bill.
Vodafone disputed the bill up to India’s Supreme Court, which ruled in January 2012 that Vodafone wasn’t liable to pay the tax. But shortly after the decision, India’s parliament inserted a new section into Indian tax law giving tax authorities the power to levy taxes on indirect transfers of shares retrospectively—thus renewing the tax demand.
“The tax case has now been brought under the scope of the bilateral tax treaties which take precedent over domestic tax law, so the government will be bound by the panel’s decision,” Pallav Narang, a partner at the chartered accounting firm CNK RK & Co., told Bloomberg Tax May 8.
The Indian government will continue to argue that the international arbitration panel doesn’t have the jurisdiction to determine what taxes a country can levy on private companies operating in its jurisdiction, practitioners said.
Practitioners say the Indian government’s argument over its sovereignty could hold weight with the international panel, but added that the retrospective nature of the tax may hurt the government’s position in this case, and open the door for other companies.
“Depending on the outcome of this case, other companies facing grief from Indian tax officers could approach arbitration under treaties—the government cannot ignore their treaties,” Narang said.
To contact the reporter on this story: Siri Bulusu in New Delhi at email@example.com
To contact the editor on this story: Penny Sukhraj at firstname.lastname@example.org
Copyright © 2018 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)