Vodafone is expected to seek to challenge a change to India's tax laws which have been applied retrospectively to its US$11.1 billion purchase of a controlling stake in Hutchison Essar. Vodafone said in a statement last Friday that it has submitted an amended writ petition challenging the "constitutionality of the retrospective amendment of the changed tax law".
A legal hearing in the Bombay High Court is due to restart on Monday (23rd June) to decide on the legality of a US$2 billion tax bill based on the purchase of the Hutchison stake. If the tax department can show that the India based Vodafone-Essar acted as an "agent" of Vodafone in its overseas purchase (arranged via Mauritius) of Hutchison's shares in Hutchison-Essar, then it may be possible that Vodafone-Essar could be held liable for the tax demand.
Last month, India's government passed a new law which allows it to take action against companies which do not withhold taxes when making a transaction - the core of the tax dispute between Vodafone and the government.
Vodafone International Holdings BV, a company registered in the Netherlands, acquired 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.
Vodafone Essar has argued that Vodafone Holdings , CGP Investments as well as HTIL are foreign companies and as the transaction was structured through Mauritius, capital gains cannot have been accumulated within India. Also India and Mauritius have a double taxation avoidance treaty, so it would not be possible for India to apply capital gains tax on transactions that are already taxed within Mauritius.
Posted to the site on 22nd June 2008
Posted to: www.cellular-news.com/story/31954.php