VODAFONE TAX DISPUTE-A LANDMARK FOR INDIA'S TAX STRUCTURE.........

Vodafone tax dispute is in news for a long period of time though many of us are still unaware what the dispute is all about.This dispute is one of the biggest controversy in Indian multijurisdictional M&A history.The tax liabilty in this particular case could  have been around 12000 crores plus interests and penalties.The case has been decided in favour of Vodafone as the Supreme Court said-"The Indian Tax authorities don’t have jurisdiction over the overseas transaction. There was no “Indian nexus.” Vodafone don’t have to pay anything; they’ll  get back, with interest, the funds they have in escrow."

AN OVERWIEW OF THE CASE

Hutchison Telecommunication International Ltd (HTIL), a company incorporated in Cayman Islands and having its principal excecutive office in Hong Kong held 66.9848% interest in an Indian company Hutchison Essar Ltd (HEL). The balance share was held by Essar Group of Companies.HEL along with other subsidiaries held license for providing cellular services in 23 circles.

In February,2007 Vodafone entered into a share purchase agreement with HTIL through its Netherland entity.Vodafone purchased the shares of the Indian company from HTIL in a $11.2 billion deal of Hutch-Vodafone. 

Through this deal Hutchison made huge capital gains.The case was a case involving foreign seller and so as per Indian tax rule it is the duty of the seller to deduct tax at source as the seller could vanish after the agreement and it would be difficult to trace them.The buying company holds Indian assets and in case of default those asset could be attached.

As per Vodafone the transaction was conducted outside India and so it is not liable to pay taxes,however as per I-T Department the deal involved asset situated in India and so it was liable to be taxed.

The Supreme Court finally gave its verdict saying that the capital gain tax does not apply to cross-border M&A deal.It would rewrite the law regarding Indian M&A tax liabilty.

Various other companies  such as AT&T and SABMiller are fighting similar types of case in various courts.