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Vodafone Tax Appeal In India Deferred Again

by Mary Swire,, Hong Kong

10 February 2011

India's Bombay High Court deferred a hearing on Vodafone’s dispute with the Indian tax office on Tuesday (February 8), and has not specified a date for a new one.

Vodafone’s appeal is against an order, which upheld an INR110bn (USD2.4bn) 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 was going to consider the jurisdiction of the Indian tax authorities to demand capital gains tax. 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. Vodafone's appeal with the supreme court is scheduled to come up for hearing on July 19.

The attorney general on behalf of the Indian government has previously 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HTIL was primarily liable, the government was unable to recover the dues from it since the Hong Kong-based group had withdrawn entirely from India.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 has been 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 | tax | business | holding company | India | Netherlands | law | mergers and acquisitions (M&A) | Cayman Islands | offshore | agreements | Hong Kong | telecoms | triangulation

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