Vodafone-Hutchison
Tax Case
In Feb.2007 Vodafone Group Plc., UK acquired
Hutchison Telecommunication limited (a Hongkong based company) stake in
Hutchison Essar limited, India. Vodafone controls 67% stake of HEL. Vodafone
acquired HEL for 11.2 billion dollars at that time.
Vodafone International Holdings 100% shares for 11.2 dollars
CGP Holdings Limited at Cayman Islands Controls 67% share of HEL through FDI Hutchison
Essar limited.
On Sept. 2007
Income tax department India show case notice to Vodafone for tax of 2.5 billion
dollars Income Tax department said that the transaction involved purchase of
assets of an Indian Company, and therefore the transaction was liable to be
taxed in India as Several vital rights were acquired
by Vodafone including license to conduct
telecom business in India, management rights, loans, option agreements, branch
license, etc through
that transaction.
October 2007: Vodafone files a writ petition in the Bombay
high court
As per Under Section 9 there is tax capital gains only if
they arise from transfer of capital assets situated in India. The impugned
transaction involved the transfer of shares of a foreign company outside India and
was hence not taxable in India.
Several countries
have in their legislation “look-through” provisions by which a tax is imposed
on gains arising out of a transfer of shares outside the country if it results
in the passing of control over a company which holds specified assets/property
in the country. Section 9 does not contain any such “look-through” rule. A
“look-through” provision cannot be inserted through judicial intervention.
September 2010: Bombay high court gives a verdict in favor
of IT department.
September 2010: Vodafone challenges the Bombay HC order in Supreme
Court
October 2010: IT dept issues tax notice for Rs11200crore
plus interest.
January 2012,
the Indian
Supreme Court passed the
judgement in favour of Vodafone, saying that the Indian Income tax department
had "no jurisdiction" to levy tax on overseas transaction between
companies incorporated outside India.
But Indian
government in 2012-13 finance Minister Pranab Mukherjee changed the Income Tax Act
retrospectively and made sure that any company, in similar circumstances, is
not able to avoid tax by operating out of tax-havens like Cayman Islands or
Lichtenstein.
May 2012 Indian Tax
authorities started a New chapter that they will take tax from Vodafone about
20000 crore in tax and fines.
In June 2013,
the Government agrees to hold conciliation talks with Vodafone on Tax dispute.
Government holds
tax demand in abeyance till conciliation talks conclusion.
Latest Moves in Case
11th Feb. 2014
Vodafone tax Dispute hits a
roadblock as Government decided to withdraw its conciliation proposal to sort
out the Rs 20,000 crore tax dispute with the telecom giant and move ahead with
the collection of dues. Last year
it has been decided to hold conciliation talks with Vodafone to sort-out tax dispute.
During talks Vodafone wanted to club Rs
3,700 crore transfer-pricing case of Vodafone India Services with the capital
gains tax issue, a demand that could not be accepted by the Finance Ministry.
The Cabinet is now
soon withdraw conciliation talks with Vodafone and proceed with Law Ministry
for collection of tax.
Income Tax Appellate Tribunal (ITAT) should be
clubbed with the 2007 dispute.
In December Income
Tax Appellate Tribunal stayed the Rs 3,700-crore tax claim by the I-T
Department on Vodafone India in a transfer-pricing dispute and asked the
company to deposit Rs 200 crore as initial payment and submit bank guarantees
for the remaining sum.
Transfer-pricing case
related with Vodafone's issue of shares in its Pune-based BPO arm Vodafone
India Services to Vodafone Tele-services Mauritius for Rs 246.38 crore in FY08.
According to the I-T department the deal was
undervalued.
This Tax issue could affect Vodafone plans to raise
stake in Indian arm to 100% by buying out minority share holders
Income Tax law
changes tarnished the Image in Global world as Companies think before investing
in India as Income Tax can be changed at any time. So foreign investors losing
faith in India.
Indian
Government should not change laws from back dates so that foreign investors do
their business in India without any fear of changing laws.