India

India

June 07, 2016

INDIA is not giving up on trying to collect taxes from Vodafone.

The country has been locked in a longrunning dispute with the British telecom company, which India says owes at least $2.1 billion in capital gains taxes that were triggered when Vodafone bought a 52% interest in an Indian mobile phone business, plus options to take its interest to 67%, from Hong Kong-based Hutchison Whampoa, for $11.2 billion in 2007. 

Vodafone bought a Cayman Islands subsidiary of Hutchison Whampoa that owned an interest in a mobile phone company in India through several tiers of other offshore companies.

Vodafone said that even if a tax was triggered by the sale, it bought the shares, and the seller — not Vodafone — should be taxed on the gain. However, Indian law requires a buyer to withhold tax from the purchase price where the seller is outside the Indian tax net.

Vodafone had the tax set aside in a case that went all the way to the Indian Supreme Court in 2012.

The Indian government then put a bill through parliament to impose such taxes retroactively on offshore share transfers back to April 1962.

This set off another round of litigation in India leading to a decision in the High Court of Bombay in favor of Vodafone in October 2015. The Indian government announced via Twitter in April that it plans to appeal the high court decision to the Supreme Court.

Vodafone is also pursuing an international arbitration before the International Court of Justice in The Hague. It asked that court in The Hague in May 2014 to commence an arbitration under the bilateral investment treaty between India and Holland, where the Vodafone subsidiary that bought the shares is located. An issue in the arbitration is whether the bilateral investment treaty can be used in connection with tax disputes.

The Indian government renewed its demand that Vodafone pay the taxes in a letter earlier this year.