India’s Supreme Court begins hearing on Vodafone tax case

4 Aug 2011

A challenge by British mobile group Vodafone Group against a tax bill related to its purchase of Indian mobile network operator Vodafone Essar has gotten underway in India’s Supreme Court, AFP reports. As noted in TeleGeography’s GlobalComms Database, in December 2008 the Newbury-based group filed a petition against tax charges amounting to around USD2.5 billion, after claims that the UK company was liable for capital gains tax, as most of the assets it bought were based in India. An initial petition was dismissed, only for Vodafone to launch a fresh appeal to the Indian Supreme Court in January 2009. In September 2010 it was revealed that the Mumbai High Court had dismissed the appeal, ruling that Vodafone must pay capital gains tax, prompting Vodafone to appeal that decision. The UK group has meanwhile warned that the tax bill could more than double, as it prepared to contest the matter, with Andy Halford, Vodafone’s chief financial officer, last month claiming that the Indian authorities had threatened to impose penalties on the company for non-payment.

For its part Vodafone has argued that the purchase deal was between two companies based outside India while Indian authorities have countered that tax must be paid on the transaction because it involved an asset based in India. As such, Vodafone maintains that 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.

Vodafone has said it expects to see a final judgement in the matter by the end of 2011.

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