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Vodafone To Fight $2 Billion Indian Tax Bill

by Lorys Charalambous, Tax-News.com, Cyprus

07 September 2007


Global mobile telecoms firm Vodafone has reportedly been issued a $2 billion tax bill by the Indian tax authorities related to its purchase of Hutchison-Essar earlier this year.

On Wednesday evening, Vodafone confirmed to UK daily newspaper, The Times that it had received a letter from the Indian Income Tax Department concerning the company's liability for capital gains tax resulting from its $11 billion takeover of Hutchison-Essar, India's fourth largest mobile phone operator.

While people familiar with the case have observed that it is unusual for the buyer, rather than the seller, to receive a capital gains tax bill on such a transaction, it is thought that the liability may have arisen because of the complex manner in which Vodafone structured the deal.

Reports indicate that the purchase may have been arranged via an offshore subsidiary in Mauritius, with Vodafone-Essar acting as an 'agent' in the deal. This could give the Indian tax department cause to show that a transfer took place and that capital gains tax at 22% should have been deducted at source by Vodafone.

Vodafone has refused to elaborate on the case, but one spokesman told The Times that the company received "clear" advice that no tax would be due on the deal, and that it intends to defend its position "vigorously".

A comprehensive report in our Intelligence Report series looking at offshore and onshore corporate structures and their tax implications is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report7.asp

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