India slaps Vodafone with $2.53 bln tax demand

NEW DELHI — India slapped a 2.53-billion-dollar tax bill on British cell phone giant Vodafone on Friday over its 2007 purchase of an Indian mobile company and demanded payment within 30 days.

By (AFP)

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Published: Fri 22 Oct 2010, 7:39 PM

Last updated: Mon 6 Apr 2015, 11:44 AM

The formal demand is the latest development in Vodafone’s bitter row with Indian tax authorities over its 11.1-billion dollar purchase of a 67-percent stake in Hong Kong-based Hutchison Whampoa Ltd’s Indian mobile unit.

Indian tax officials have call the long-running dispute a “test case.”

It is being closely watched by international investors with experts saying the case could have implications for big-ticket purchases of Indian firms by other foreign companies.

“The income tax department today issued an order raising a tax demand of 112.17 billion rupees (2.53 billion dollars) on Vodafone International Holdings BV,” owned by Vodafone Group Plc, the tax office said in a statement.

“The tax demand is to be paid within 30 days,” the statement said.

The bill follows a lower court ruling last month ordering Vodafone to pay taxes on the acquisition. India’s Supreme Court is slated to set a date for a hearing on the company’s appeal next Monday.

The tax demand brought a stinging response from Vodafone, which accused tax authorities of “attempting to interpret Indian law as it has never been interpreted for the past 50 years.”

“This interpretation also goes against internationally recognised tax norms,” a Vodafone spokesman said.

Vodafone “strongly disagrees with the tax calculation” and believes “it is not liable for any tax on this transaction involving the transfer of a company outside of India,” the spokesman said.

Vodafone maintains Indian law did not require it to deduct tax because the deal took place in the Cayman Islands and both buyer and seller were foreign.

“Further, Vodafone was the acquirer and not the vendor and has made no gain on the transaction,” the spokesman noted.

Earlier this week, Vodafone chief executive Vittorio Colao said the outcome of the dispute could be a key factor in determining the company’s future investments in India.

“The tax issue will be incredibly important for us to determine how (investor) friendly India is.”

Colao also said it was “very important to have an outcome here that establishes a principle for the future. This is a concern for our investors and for other international investors.”

The latest development comes as Indian authorities scrutinise tax aspects of other international deals.

SABMiller, the world’s second-biggest brewer, has a tax case pending over its 120-billion-dollar acquisition in 2006 of the Indian arm of Foster’s from the Australian drinks group.

“This (tax) law has been in place since the 1960s, it has never been interpreted like this — that’s why the Vodafone case is seen as a test case,” a tax analyst at an international consultancy told AFP.

Vodafone has faced a rough ride since it entered India, the world’s fastest-growing mobile market, with cut-throat competition forcing down call rates and hitting the company’s earnings.

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