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Will take applicable motion, says Finance Ministry on Vodafone tribunal setback – enterprise information

The federal government might take applicable motion on the Vodafone tax case, two finance ministry officers mentioned including that there isn’t any query of India shedding Rs 20,000 crore as Vodafone didn’t pay the tax, together with curiosity and penalty on it

Additionally, the Tribunal has not accepted the declare of Vodafone for award of damages, they mentioned requesting anonymity.

They mentioned the federal government would look at the order rigorously and additional applicable motion could be taken after acquiring authorized opinion, together with, difficult the award by submitting of an software earlier than the suitable courtroom in Singapore, which is the seat of the arbitration.

A global arbitration tribunal on September 25 dominated in favour of Vodafone and held that the tax demand raised by the Indian Revenue-Tax Division on the premise of the retrospective modification is in violation of the India-Netherlands Bilateral Funding Promotion Settlement (BIPA).

In accordance with sources, the tribunal has directed India to bear 60% of price incurred by Vodafone in direction of authorized illustration and help, which involves 43,27,294.50 kilos and 50% of the charges paid by Vodafone to the appointing authority, which comes to three,000 Euros, they mentioned.

“Thus, the full price of reimbursement works out in Indian rupees to round Rs. 40 crore. As well as, an quantity of Rs. 44.74 crore collected from Vodafone must be refunded in pursuance of the order of the Arbitration Tribunal. Thus, the full outgo on account of this award is estimated to be round Rs. 85 crore,” one of many officers mentioned.

It could be famous right here that in February 2007, Vodafone Worldwide Holding (a Netherland Firm) had bought 100% shares of CGP Investments (Holding) Ltd (CGP Ltd.) (a Cayman Islands Firm) for $11.1 billion from Hutchison Telecommunications Worldwide Restricted. CGP Ltd. not directly managed 67%of Hutchison Essar Restricted (HEL Ltd.) — an Indian Firm. Therefore, by this acquisition, Vodafone acquired management over an Indian firm -Hutchison Essar Restricted.

Officers mentioned it was argued by Vodafone that this transaction was not chargeable for tax in India because the asset transferred i.e. shares of CGP Ltd are the shares of the Cayman Island Firm and therefore was not shares of an Indian firm. The Revenue Tax Division felt that such oblique switch was designed solely to keep away from capital achieve tax in India, it raised a requirement of round Rs 7,900 crore by holding that the mentioned switch of shares of CGP Ltd. concerned oblique switch of Indian property, i.e., shares of an Indian firm (HEL Ltd).

Vodafone challenged the order earlier than the Bombay Excessive Courtroom which upheld the order of the Revenue Tax Division. Vodafone subsequent challenged the order earlier than the Supreme Courtroom. The Supreme Courtroom in 2012 gave the judgement in favour of Vodafone, holding that such oblique switch of property isn’t taxable beneath present provisions of the Revenue Tax Act.

Finance ministry officers mentioned to cease the abuse and plug loophole of such oblique switch of Indian property and likewise because the intention of the related provisions of the Revenue Tax Act was all the time to tax oblique switch of Indian property, the Finance Act, 2012 made an modification to particularly make clear that oblique switch of property positioned in India have been all the time taxable beneath the Revenue Tax Act.

“With this modification, the demand on Vodafone revived,” a second official mentioned.

Later, Vodafone invoked worldwide arbitration beneath the Bilateral Funding Promotion and Safety Settlement (BIPA) between India and the Netherlands. The Indian authorities defended its place saying that it has sovereign proper to tax capital achieve on switch of property positioned in India and is effectively inside its proper to take all measures to cease avoidance of taxes by oblique transfers by tax havens, officers mentioned.

“The Parliament rightly clarified its intent by an modification within the Revenue Tax Act and, due to this fact, such measure can’t be opposed by merely labelling it as a retrospective modification,” the second official mentioned.

“The query is ought to the federal government of India have allowed such loopholes to proceed? The reply is clearly no. It’s responsibility sure to take all steps to guard public cash and exchequer and if there may be any try to keep away from the taxes by routing the transaction by a tax haven like Cayman Island, it’s entitled to take all measures together with modification in legislation to cease such abuse,” he mentioned.

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