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Vodafone Group plcvs.
Indian Tax Authorities
Brought to you bySagar.N
By Sagar & Godwin
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OVERVIEW
• In 2007 Vodafone International purchased the Indian mobile telephony
assets of Hong Kong-based Hutchison Whampoa Ltd.. The Indian Tax
court issued that Vodafone withhold a $2.2 billion liability for capital gains
tax to the Indian tax authorities.
• Hong Kong-based Hutchison sold its 66.98% shares in the Indian Telecom
Company Hutch Essar ltd trough a holding company based in an offshore
destination for $11.2 billion to Vodafone.
• Hutchison controlled its Indian telecom subsidiary through a Cayman
Island company called CGP. CGP’s shares were sold to Vodafone, which
consequently became majority owner of the Indian telecom firm.
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ARGUMENTS
VODAFONE’S ARGUMENTS:
India does not have jurisdiction to
tax the Hutchison deal because it
was structured as a transaction
between two overseas entities.
INDIAN TAX AUTHORITY’S ARGUMENTS:
Although Vodafone and Hutchison
had conducted their transaction
offshore, the deal involved Indian
assets and was hence liable for
capital gains tax in India.
Under Indian laws, Vodafone was
responsible for withholding tax on
the transaction and playing it to the
Indian authorities.
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SUPREME COURTS DECISION
• The Supreme Court ruled in favor of Vodafone in the $2 billion tax
case saying Indian tax authorities have no jurisdiction over
Vodafone’s 2007 purchase of the Indian mobile telephone assets of
Hong Kong-based Hutchison Whampoa Ltd. when neither company
is based in India.
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IMPLICATIONS
• The verdict has implications for cross border M&A activity and
similar pending cases before various courts.
• The Vodafone tax case threw an interesting question on the
taxability of a non resident company acquiring shares of a resident
company through an indirect route. This is a landmark case, as it is
for the first time that the tax departments had sought to tax a
company through a mechanism of tracing the source of acquisition.
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Click on the link for detailed case
http://www.business-standard.com/content/general_pdf/012012_01.pdf
