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Vodafone may have won the day after a favourable arbitration result cut off India’s claim to massive back taxes, but will this crucial award remain unchallenged when so much more is at stake? Freny Patel reports

The decade-old legal battle between Britain’s telecoms major Vodafone and the Indian government over a tax dispute is expected to continue for many more years. Vodafone may have breathed a sigh of relief last month when it announced that the Hague-based Permanent Court of Arbitration unanimously ruled in its favour, “including India’s appointed arbitrator Rodrigo Oreamuno”, in the retrospective imposition of tax liability.

While the international tribunal held that any attempt by the government to enforce the tax demand would be a violation of India’s international law obligations, there are still uncertainties around the arbitral award. India may decide to challenge it, or resist its enforcement through the local courts, which would give rise to further court proceedings in Singapore, India and elsewhere for years to come, legal experts have speculated.

The likelihood of the government challenging the international arbitration award that favoured the UK telecommunications company holds some merit. After all, which sovereign state would wish to lose massive tax revenue on account of an arbitral award? Not to mention that this award sets a precedent for other similar upcoming cases, including that of Cairn Energy and Vedanta Resources.

The Permanent Court of Arbitration ruled that India’s attempt to impose a retrospective withholding tax demand of US$5.5 billion (including penalties and interest) on Vodafone was in violation of India’s obligations under the India-Netherlands bilateral investment treaty. It further ruled that any attempt by India to enforce its demands against Vodafone would violate international law.

While no compensation has been awarded to the UK telecom, the English court has asked the Indian government to pay about ₹400 million (US$5.4 million) towards the legal cost incurred and refund the tax collected thus far.

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