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Monday, March 3, 2014

Vodafone Tax issue case study

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.


Vodafone Tax issue case study

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.