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Indian Court Delays Vodafone Tax Hearing

Mary Swire,, Hong Kong

25 November 2010

A date of February 8, 2011 has now been fixed by the Bombay High Court for the hearing of an appeal by Vodafone International Holdings BV against a ruling by the Indian authorities.

Vodafone’s appeal is against an order, which upheld an INR110bn capital gains tax demand by the income tax authorities in respect of the USD11.2bn acquisition of Hutchison Telecom International Ltd’s (HTIL) stake in a Cayman Islands company, by virtue of which Vodafone acquired the Indian Hutchison Essar mobile phone network.

The court hearing will consider the jurisdiction of the Indian tax authorities to demand capital gains tax, since Vodafone has maintained that there is no jurisdiction, the main agreements having been signed abroad between non-Indian entities. It has however come to light that a small part of the total acquisition documents involved Indian interests and were signed in India. It was acknowledged by the supreme court that an apportionment of liability concerning the Indian content of the contract could also become a material consideration.

The attorney general on behalf of the Indian government told the court that although HTIL was primarily liable, the government was unable to recover the dues from it since the Hong Kong-based group had withdrawn entirely from India.

Moves are also afoot for resolving the dispute through different avenues. The Netherlands government was reported to have written to the Indian government on behalf of the Vodafone Dutch holding company with a view to arranging an out of court settlement, using mutual agreement procedures provided in the double taxation agreement between the two countries. While this is going on Vodafone has been asked to pay the court a deposit of INR25bn (USD552m), and provide a bank guarantee worth INR85bn with a state bank.

TAGS: court | capital gains tax (CGT) | tax | holding company | India | Netherlands | Cayman Islands | group taxation | agreements | multinationals | Hong Kong

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