Vodafone Group Plc VOD.L has reportedly won a controversial $2 billion tax case against the Indian government after the Permanent Court of Arbitration at The Hague held Friday that India breached its Bilateral Investment Treaty with The Netherlands by imposing tax liability on Vodafone. India is believed to have claimed as much as 279 billion rupees from Vodafone ($3.79 billion), including $2 billion in tax and interest penalties.
The international tribunal held that India’s demands breached “fair and equitable treatment” and ordered India to cease collecting fees from Vodafone. The tribunal also directed India to pay Vodafone a confidential award for the fees already collected and 4.3 million pounds ($5.47 million) in legal costs.
“The tribunal held that any attempt by India to enforce the tax demand” would “viola[te]…India’s international law obligations,”
Though the amount remains confidential, India’s finance ministry says it will review the award with its lawyers and determine how to proceed.
Vodafone initiated arbitration proceedings against India in 2014 after an $11 billion deal to purchase Indian mobile assets went sour. The deal ended in controversy when the Indian government said Vodafone was liable to pay acquisition taxes, which Vodafone contested. India’s top court ruled in favor of Vodafone in 2012, triggering the Indian government to amend its Finance Act, which enabled the government to retroactively tax businesses.
India has become embroiled in multiple retroactive tax disputes in recent years. Consequently, India recently terminated agreements with over 50 countries and began drafting new laws protecting foreign investors while reserving the right to tax companies. New policies would offer businesses relief from sudden policy changes.