The Indian government has decided to contest the compensation awarded to Vodafone by an international court at The Hague in its retrospective tax dispute. Earlier last week, the international court had demanded a $3 billion tax demand against Vodafone Group, finding it to be in breach of fair treatment under the country’s bilateral investment protection pact with the Netherlands. Following this, the Indian Government will be reaching out to foreign institutional investors reassuring them that India will honor its obligations and taxation policy.
The Taxation story goes back to 2007 when Vodafone purchased Li Ka-Shing's India wireless business. The Hong Kong tycoon sold a Cayman Islands-based investment firm to the U.K. operator. The Indian Government in 2012 under Manmohan Singh had imposed a tax share of CK’s vast capital gains and asked Vodafone to settle the bill from the amount it had withheld from Li Ka-Shing's India wireless business. The dispute went to India’s Supreme Court, which held that the government’s tax jurisdiction didn’t extend to the Cayman Islands. Later, the Supreme Court of India gave the AGR verdict that Vodafone Idea will have to pay around Rs 5,825 crore in compensation of the gross revenue.
However, the government is confident that it can successfully challenge the enforcement of the award in Indian courts. Recently, the Modi Government has been keen on making India favorable for foreign investments, and the Vodafone taxation issue will be a key factor in shaping the future for further foreign investments in India.
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