British mobile operator Vodafone filed a petition on Friday with the Bombay High Court against a new step by the Indian tax authorities to treat the company as an ‘agent’ of the seller in its purchase of Hutchison Telecom in 2007.
“Having pursued one…
British mobile operator Vodafone filed a petition on Friday with the Bombay High Court against a new step by the Indian tax authorities to treat the company as an ‘agent’ of the seller in its purchase of Hutchison Telecom in 2007.
“Having pursued one line of argument in seeking tax from Vodafone through alleging failure to withhold tax; the Tax Office has now initiated a different process – treating Vodafone as an ‘agent’ of the seller,” Vodafone wrote in a statement to TelecomFinance.
A few weeks ago, an Indian court ruled that authorities were allowed to seek a tax bill from Vodafone International, a Dutch subsidiary of Vodafone, on the US$11.2bn Essar acquisition.
Vodafone argued that its subsidiaries in Mauritius and the Cayman Islands, where the stake changed hands, were fully functional companies. But the Indian Income Tax department said that the deal not only involved the transfer of shares but also a transfer of rights such as management control, brands and rights to conduct business in India, allowing the country to claim tax.
Vodafone said that the tax authorities have now initiated a different process by treating Vodafone as an agent of the seller.
“Vodafone contends that the key issue of jurisdiction (as to whether the Indian tax office can tax the transfer of a foreign company’s shares between two non-residents) is currently under appeal to the Supreme Court of India. Hence any action which seeks to treat Vodafone as an ‘agent’ of Hutchison is misguided and premature,” read the statement.
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.
The Supreme Court recently said that the tax authorities would determine the potential tax liability linked with the acquisition of Essar by October 25
