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Vodafone loses India tax case, to appeal

MUMBAI - An Indian court on Wednesday dismissed a petition against a $2 billion tax bill relating to Vodafone Plc’s purchase of a mobile phone operation in India in 2007, but the British firm said it plans to appeal.

‘Vodafone, based on advice received, continues to believe that the transaction is not subject to tax in India and is confident of a positive outcome ultimately,’ a statement issued by its public relations agency said.

The telecoms firm said it would wait for the written order of the Bombay High Court to review the grounds of the decision and file an appeal in the Supreme Court of India.

Vodafone International Holdings has been granted a stay on the decision for eight weeks by the high court, said Dinesh Kanabar, executive director, tax and regulatory services at PricewaterhouseCoopers, the tax consultant for Vodafone.

Vodafone Group Plc last year paid $11.1 billion to a unit of Hong Kong’s Hutchison Whampoa for a controlling stake in an Indian mobile operator.

It received a tax bill from the income tax department, which said Vodafone was liable to pay capital gains tax as most of the assets it bought were based in India.

Vodafone challenged the charge, arguing the Indian law at the time did not require it to withhold tax on the acquisition, and that capital gains tax was usually paid by the seller, not the buyer.

It also questioned the constitutionality of a retrospective change to the Indian tax law in May this year that would allow the government to take action against companies that do not withhold taxes when making a transaction.

India is the world’s fastest growing mobile services market, with new subscribers running at more than 10 million a month.

Vodafone Essar had 56.7 million subscribers at the end of October, making it the third-biggest operator behind leaders Bharti Airtel Ltd and Reliance Communications Ltd.