Vodafone Appeals Indian Tax Order

by Mary Swire, Tax-News.com, Hong Kong

09 June 2010

UK telecoms multinational Vodafone has responded to the Indian Income Tax department's reassertion of its jurisdiction to levy withholding tax on the USD11.1bn sale to Vodafone of a 67% stake in Hutchinson Essar in 2007 with an appeal to the Bombay High Court.

The dispute arises out of the purchase of the majority shareholding in Hutchinson Essar, an Indian telecom company, by Vodafone International Holdings BV (VIH), a Dutch company, from a Cayman Islands subsidiary of Hutchison Telecommunications International Ltd (HTIL), Hong Kong. A Mauritian intermediate company was also interposed between the Cayman Islands company and the shares in Hutchinson Essar.

The Indian tax authorities have contended that the shares in the Cayman Islands company were merely the mode or the vehicle to transfer the assets situated in India, and that, therefore, the effective transaction between the VIH and HTIL was a transfer of interests, tangible and intangible, in an Indian company and not merely an acquisition of shares of a shell foreign company.

The matter will now be considered again in the Bombay High Court. VIH has stated that it accepts no liability for withholding tax, contends that the legal advice it has received supports its contention, and intends to defend its position vigorously.

While no figure has yet been put on the tax which would be payable, it could obviously be substantial. Some reports have put the liability at USD2bn.

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