Vodafone could set aside USD2.2bn for the payment of its Indian tax liabilities, as the telecoms giant's long-running battle over its acquisition of Hutchinson Essar shows no sign of ending.
In January, the India government lost its five-year battle with Vodafone in the Supreme Court when it was ruled that the company was not liable for a USD2.2bn bill in back taxes and penalties in connection with its acquisition of a majority stake in mobile phone company Hutchinson Essar in 2007. The government was also ordered to repay the USD496m deposit paid by Vodafone in late 2010, plus 4% interest.
According to Vodafone's Chief Financial Officer Andy Halford, the company may however now need to make provision to cover its legal risks in India in light of the introduction of controversial new retroactive income tax legislation.
Concerns were raised by Vodafone in April that the government's Finance Bill, introduced in March, could overturn the Court's verdict. The transaction had originally been targeted by Indian tax authorities because a Dutch-registered subsidiary of Vodafone Group had made its payment to a Cayman Islands-registered subsidiary of HTIL in order to acquire the 67% stake in Hutchinson Essar.
The Finance Bill was shaped so as to bring such transactions into the Indian tax net. It clarifies that “an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India if the share or interest derives, directly or indirectly, its value substantially from the assets located in India”.
In August, reports surfaced that the new Finance Minister Shri P. Chidambaram had advised his department that it may still be able to recover the taxes from Vodafone. The government's claims would be based on these retrospective amendments.
A decision will be made by Vodafone by November, Halford has said..
TAGS: tax | telecoms | legislation | tax planning | tax rates | capital gains tax (CGT) | tax compliance | India | tax avoidance | interest | compliance | regulation | penalties | legislation amendments | Finance
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