Union Cabinet appointed Ex-CJI R C Lahoti as arbitrator in Vodafone tax dispute case

Union Cabinet on 17 June 2014 appointed Ex-Chief Justice of India (CJI) R C Lahoti as arbitrator in Vodafone tax disputes case.

On the other part, Vodafone has appointed renowned arbitrator and diplomat Yves Fortier for the case.

The appointment of an arbitrator come after the notice was served to the Government of India in April 2014 by the Vodafone under the Bilateral Investment Protection and Promotion Agreement between India and the Netherlands for resolving the dispute.  

The arbitration notice, however, led to the withdrawal of the conciliation offer by the government in May 2014.
 
An Analysis of the Issue

According to the Indian government, the tax liability on Vodafone is 20000 crore rupees. The said tax liability of Vodafone in India arose from the purchase of Hutch Essar in 2007 for 11 billion US dollar, as it involved cross-border transfer of Indian assets. Although, the basic tax demand were 7990 crore rupees.

Earlier in May 2014, India withdrew a conciliation offer to Vodafone on the issue saying the telecom major had initiated arbitration without waiting for the Income Tax Appellate Tribunal decision on another transfer pricing dispute that was seen as a hurdle to engaging in conciliation talks.

The UPA-II Government led by former PM Manmohan Singh wanted the transfer pricing dispute to be settled first so that conciliation talks with Vodafone on the Hutchison Essar deal could go ahead.

In June 2013, the Cabinet under then Prime Minister Manmohan Singh had approved the conciliation with Vodafone to resolve the capital gains tax dispute related to its 2007 purchase of Hutch Essar for 11 billion dollars.

Further, the tax department had prepared a response to Vodafone’s notice of arbitration, explaining that taxation is not a subject on which India is bound to provide fair and equitable treatment under Article 4 of the India-Netherlands Bilateral Investment Protection Agreement that speaks of national treatment and most favoured nation treatment for foreign investors.