Bad News for Vodafone in US$2 Billion Indian Tax Dispute

India's Authority for Advance Rulings (AAR) has ruled that an overseas transaction between two US companies involving the sale of Indian assets is liable for taxation - and that the buyer is required to pay the tax liability. The ruling is significant as the situation closely mirrors that affecting Vodafone's recent purchase of Huchison International's controlling stake in Hutchison Essar, now known as Vodafone Essar.

Vodafone has argued that it is not liable for the taxes because the sale took place between offshore entities outside of the Indian government's jurisdiction. The company has also claimed that Hutchison, the seller, should be liable for any related taxes.

The ruling from the AAR affects the dealing of shares in the Hyderabad-based Trinity Corp. between two US based companies. The AAR ruled that the buyer of the shares should be treated as an "­agent" under Section 163 of the Income-Tax Act, even though they are not Indian companies. It also ruled that the responsibility for paying the taxes due lies with the buyer.

While the court case is only binding in this specific instance, it will be a boost to the Indian government's attempt to claim upwards of US$2 billion in tax liabilities from Vodafone following its US$11.1 billion purchase of Huchison's stake in the Indian phone company.

The transaction itself was rather complex - with Vodafone International Holdings BV, a company registered in the Netherlands, acquiring the entire share capital of CGP Investments (Holdings) Ltd, a Cayman Islands based company from Hutchison International (HTIL). CGP, itself, owns 52 per cent stakes in Hutchison India.

Source:http://www.cellular-news.com