India

India

January 13, 2009

INDIA said it will make claims for unpaid capital gains taxes in at least a dozen recent acquisitions of interests in Indian companies by offshore investors.

The announcement comes on the heels of the dismissal on December 3 of a challenge to a $2 billion capital gains tax claim by the Indian government against UK telephone company
Vodafone in the Bombay High Court. Vodafone bought a 52% interest in an Indian mobile phone company called Hutchison Essar from Hong Kong-based Hutchison Telecom International Ltd.The purchase was a purchase by a Vodafone  subsidiary in The Netherlands of shares in a Cayman company from another Cayman subsidiary of Hutchison Telecom International.

The Cayman company whose shares were purchased owned a holding company in Mauritius that, in turn, owned the 52% interest in the Indian mobile phone company. Under Indian law, a buyer of shares is required to withhold any capital gains tax owed in India and pay it to the government.

Vodafone argued that the transaction had no nexus with India since it was a purchase of shares in a Cayman company two tiers up from the Indian company and the entire transaction
took place outside India.