Vodafone Group Plc.
v.
Indian tax authorities
Overview
• In 2007 Vodafone International purchased the Indian
mobile telephony assets of Hong Kong-based Hutchison
Whampoa Ltd.. The Indian Tax court issued that Vodafone
withhold a $2.2 billion liability for capital gains tax to the
Indian tax authorities.
• Hong Kong-based Hutchison sold its 66.98% shares in the
Indian Telecom Company Hutch Essar ltd trough a
holding company based in an offshore destination for
$11.2 billion to Vodafone.
• Hutchison controlled its Indian telecom subsidiary
through a Cayman Island company called CGP. CGP’s
shares were sold to Vodafone, which consequently became
majority owner of the Indian telecom firm.
The Arguments
Vodafone’s arguments:
• India does not have jurisdiction to
tax the Hutchison deal because it
was structured as a transaction
between two overseas entities.
Indian Tax Authority’s
arguments:
• Although Vodafone and
Hutchison had conducted their
transaction offshore, the deal
involved Indian assets and was
hence liable for capital gains tax
in India.
• Under Indian laws, Vodafone was
responsible for withholding tax
on the transaction and playing it
to the Indian authorities.
Supreme Court Decision
• The Supreme Court ruled in favour of Vodafone in the
$2 billion tax case saying Indian tax authorities have
no jurisdiction over Vodafone’s 2007 purchase of the
Indian mobile telephone assets of Hong Kong-based
Hutchison Whampoa Ltd. when neither company is
based in India.
Implications
• The verdict has implications for cross border M&A activity and
similar pending cases before various courts.
• The Vodafone tax case threw an interesting question on the
taxability of a non resident company acquiring shares of a
resident company through an indirect route. This is a landmark
case, as it is for the first time that the tax departments had
sought to tax a company through a mechanism of tracing the
source of acquisition.
Further Reference
• Further reference on this case can be found at:
http://www.businessstandard.com/content/general_pdf/012012_01.pdf
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