VODAFONE AND THE PERMANENT COURT OF ARBITRATION
RULING
INTRODUCTION
The Permanent Court of Arbitration (PCA) in The Hague (Netherlands) ruled that India's
imposition of a tax liability, as well as interest and penalties, on Vodafone Group for a
2007 deal was a violation of the Bilateral Investment Treaty with the Netherlands and the
United Nations Commission on International Trade Law's arbitration rules (UNCITRAL).
ABOUT THE CASE
Vodafone Group, a British telecommunications corporation, purchased a 67 percent
share in Hutchison Whampoa in May 2007. Under the Income Tax Act of 1961, the
Indian government demanded capital gains and withholding tax from Vodafone for the
first time. Vodafone should have deducted the tax at source before making a payment
to Hutchison, according to the authorities. The Supreme Court found in favour of
Vodafone Group in 2012.Later, the Finance Act was changed (2012), allowing the
Income Tax Department to tax such transactions retroactively.
In 2014, Vodafone filed for arbitration, using the 1995 Bilateral Investment Treaty
between India and the Netherlands.The Permanent Court of Arbitration's International
Arbitration Tribunal decided that the government's demand is in violation of fair and
equitable treatment. The government must stop pursuing Vodafone for unpaid debts.
This was a unanimous ruling, which means that the arbitrator chosen by India also
found in Vodafone's favour.
BILATERAL INVESTMENT TREATY
On November 6, 1995, India and the Netherlands signed a Bilateral Investment Treaty
(BIT) to promote and protect investment by Indian and Dutch enterprises in each
other's territory. The two countries would ensure that companies operating in each
other's domains are treated fairly and equally at all times, and that they are fully
protected and secure in the other's territory. The India-Netherlands Bilateral Investment
Treaty (BIT) expires on September 22, 2016.
Vodafone invoked BIT because its Dutch entity, Vodafone International Holdings BV,
had purchased Hutchison Telecommunication International Ltd's Indian business
interests. As a result, it was a transaction between a Dutch and an Indian company.
UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE LAW:
1. UNCITRAL was established in 1966 as a subsidiary body of the United
Nations General Assembly (UNGA).
2. It is the core legal body of the United Nations system in the field of
international trade law.
3. Mandate: To further the progressive harmonization and modernization of
rules on international business and reform commercial laws.
4. It adopted the UNCITRAL Model Law on International Commercial
Arbitration in 1985 and the UNCITRAL Conciliation Rules in 1980.
5. The UNGA has recommended the use of the said Model Law and Rules in
cases where a dispute arises in the context of international commercial
relations and the parties seek an amicable settlement of that dispute by
recourse to conciliation.
6. India has also incorporated these uniform principles of Arbitration and
Dispute Resolution (ADR) in the Arbitration and Conciliation Act,
1996 which has been amended several times.The Arbitration Act provides
for ADR mechanisms like arbitration, conciliations, etc. for national and
international stakeholders.
Comments
Post a Comment