Vodafone Is Liable for Tax on India Deal, Court Finds
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MUMBAI, India -- A court on Wednesday ruled against Vodafone, the cellphone company, in a tax case that could deal a significant blow to foreign investors who own or want to buy shares and companies in India.
Ruling in favor of India's Income Tax Department, the Bombay High Court said Vodafone was liable for taxes on its $11 billion acquisition in 2007 of a controlling stake in one of India's largest cellphone companies. The court gave Vodafone eight weeks to appeal the judgment to the Supreme Court, India's highest court.
Legal specialists said the decision could have far-reaching ramifications if it established the precedent that any transaction involving Indian assets was subject to local taxation even when such deals were made overseas. It would raise the cost of new acquisitions and could result in tax bills on past deals that had escaped the notice of Indian authorities.
In a statement, Vodafone said it was considering appealing to the Supreme Court. "Vodafone remains confident that there is no tax to pay on the transaction," the statement read.
Indian tax authorities argued that Vodafone should have withheld capital gains taxes from the $11 billion it paid to Hutchison Whampoa for its 67 percent stake in Hutchison Essar, which is now known as Vodafone Essar, India's third-biggest cellphone company by subscribers.
Indian officials contend tax is owed on the deal because the assets sold are based in India -- a position that the court affirmed on Wednesday -- and that Vodafone, as the buyer, was responsible for remitting the money to the government.
But Vodafone has maintained that no tax was owed on the transaction because it took place between offshore corporations -- Vodafone and Hutchison -- and the entity that was acquired was legally registered in the Cayman Islands.
First Published September 9, 2010 2:00 am
