VODAFONE AND THE PERMANENT COURT OF ARBITRATION RULING

 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.