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Vodafone Ordered To Pay Deposit By Indian Court

by Mary Swire,, Hong Kong

17 November 2010

After agreeing to hear an appeal in February 2011, the Indian Supreme Court has requested a deposit of INR25bn (USD552m) from the Vodafone Group Dutch holding company within three weeks and a bank guarantee of INR85bn within two months. In the meantime the tax authorities are restrained from enforcing their tax claim against Vodafone.

Vodafone’s appeal is against a Bombay High Court 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 supreme 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HTIL was primarily liable, the government was unable to recover the dues from it since the Hong Kong-based group had withdrawn entirely from India.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.

TAGS: court | capital gains tax (CGT) | tax | double tax agreement (DTA) | India | Netherlands | tax avoidance | interest | law | Cayman Islands | agreements | Hong Kong | telecoms

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