The Indian tax authorities have given 30 days to Vodafone International to pay Rs112.18bn (US$2.53bn) in tax for its US$11bn purchase of Hutchison Essar.
The Dutch subsidiary of British mobile operator Vodafone said in a statement last Friday that it…
The Indian tax authorities have given 30 days to Vodafone International to pay Rs112.18bn (US$2.53bn) in tax for its US$11bn purchase of Hutchison Essar.
The Dutch subsidiary of British mobile operator Vodafone said in a statement last Friday that it “strongly disagrees” with the tax calculation and that the Indian tax department’s order is “unfounded”.
Several weeks ago, an Indian court ruled that authorities were allowed to seek a tax bill from Vodafone International on its purchase of Vodafone Essar (previously known as Hutchinson Essar) in 2007.
But the company wrote in the statement that “Vodafone continues to believe that it is not liable for any tax on this transaction involving the transfer of a company outside of India. Further, Vodafone was the acquirer and not the vendor and has made no gain on the transaction. In this ‘test case’, the tax authority is attempting to interpret Indian law as it has never been interpreted for the past 50 years, and this interpretation also goes against internationally recognised tax norms.”
The hearing of Vodafone’s tax case was originally scheduled for October 25 but has now been deferred to November 15, the company told TelecomFinance.
Experts in the industry fear that if the government decides to go ahead with the tax bill, other foreign firms might be deterred from making investments in the country. With 14 mobile operators in India, the sector is considered overcrowded. But Indian tax regulations are often seen as the main hurdle to consolidation since buyers have no clarity as to how regulations will change.
In a recent interview with the Economic Times, Vodafone CEO Vittorio Colao said that the outcome of the tax row between Vodafone and the Indian tax authorities will help determine how friendly India is, and that he would need a positive outcome from the tax case and a stable regulatory environment to continue investing in the country.
