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Indian Court Dismisses Vodafone Tax Petition

by Mary Swire,, Hong Kong

12 September 2013

Vodafone's latest transfer pricing dispute with the Indian Government looks set to rumble on after the Bombay High Court dismissed a petition questioning the decision to hike the company's tax bill.

In February, the Indian Income Tax Department claimed that the telecoms giant had under-priced shares it issued to a Mauritian subsidiary by as much as INR13bn (USD202.6m). Vodafone immediately challenged the Transfer Pricing Order issued by the Department, arguing that the Order had "no basis in law," because share subscriptions do not fall under the remit of India's transfer pricing rules.

The petition, filed with the Bombay High Court, raised the jurisdictional issue on the basis of a precedent having been established in a separate tax dispute.

In January, 2012, the Supreme Court ruled that Vodafone was not liable for a USD2.2bn bill in back taxes and penalties in connection with its acquisition of mobile phone company Hutchison Essar in 2007. The transaction involved Vodafone International Holdings, a Dutch-registered subsidiary of Vodafone Group, making the USD11bn payment to a Cayman Islands-registered subsidiary of HTIL, in order to acquire a 67 percent stake in Hutchinson Essar.

Subsequent changes to tax legislation threw the ruling into doubt. While Vodafone maintains that no tax was payable on the deal, the Government continues to push for what it believes is owed. Progress is slow, with Vodafone currently considering whether to enter into conciliatory talks under Indian law.

Commenting on the transfer pricing case, the High Court concluded that the transfer pricing authorities did have the right to investigate the alleged unreported cross-border transactions. Vodafone was advised to pursue a different course, and either file an objection to the Dispute Resolution Panel, or appeal before the Income Tax Appellate Tribunal.

Reacting to the decision, a spokesperson for Vodafone said that the court had "focused solely on procedure and not on the merits of Vodafone's case." The company now has around 12 weeks to consider what to do next, and the court has extended a stay on the Government's final tax demand order.

TAGS: court | compliance | Transfer Pricing | tax | business | tax compliance | India | Netherlands | tax avoidance | law | Cayman Islands | ministry of finance | tax authority | multinationals | legislation | tax planning | transfer pricing | revenue statistics | tax reform | penalties | telecoms | Tax

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