Government mulls options after Vodafone dispute win

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In a decade-long battle between the British Vodafone Group and the Indian tax department, the telecom giant emerged victorious before the Permanent Court of Arbitration (PCA) at The Hague. It was held that the Indian government’s tax assessment relating to Vodafone’s acquisition in 2007 was “in breach of guarantee of fair and equitable treatment” as mentioned in the Netherlands-India bilateral investment treaty (BIT).

The issue pertained to a tax demand of ₹120 billion (US$1.62 billion) made by the Indian income tax department upon Vodafone, with respect to its acquisition of the Indian assets of Hutchison Whampoa in 2007. It was contended by the Indian tax department that although the agreement between Vodafone and Hutchison Whampoa was executed outside India, since it was related to assets in India, Vodafone was subject to capital gains tax. The same was denied by Vodafone, and further it was argued that because the transaction occurred between its Dutch subsidiary and the Cayman Islands-based holding company, India could not charge capital gains tax, since neither company was Indian.

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