Vodafone Idea
Vodafone Idea now has catchier name, Vii. But Vodafone will have secured its biggest win after a tribunal ruled that it will not have to pay $2b to the Indian government as back taxes. Image Credit: Agency

New Delhi: Vodafone Group has won an international arbitration case against the Indian government in a $2 billion tax dispute. An international arbitration tribunal in The Hague ruled that India's imposition of a tax liability on Vodafone, as well as interest and penalties, were in a breach of an investment treaty agreement between India and the Netherlands.

The tribunal, in its ruling, said the government must cease seeking the dues from Vodafone and should also pay 4.3 million pounds ($5.47 million) to the company as partial compensation for its legal costs. The tax dispute stems from Vodafone's acquisition of the Indian mobile assets from Hutchison Whampoa in 2007.

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The government said Vodafone was liable to pay taxes on the acquisition, which the company contested. In 2012, India's top court ruled in favour of the telecom provider, but the government later that year changed the rules to enable it to tax deals that had already been concluded.

In April 2014, Vodafone initiated arbitration proceedings against India. India is entangled in more than a dozen international arbitration cases against companies, including Cairn Energy, over retrospective tax claims and cancellation of contracts. The exchequer could end up paying billions of dollars in damages if it loses.