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Vodafone wins India tax dispute

24th Jan 2012
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Vodafone Group has won a landmark $2.6 billion (£1.6bn) case against India’s tax office in a Supreme Court ruling.

The long-running case followed a tax demand on Vodafone’s $10.9bn acquisition of Hutchison Whampoa's Indian mobile telecoms business in 2007. India’s tax office claimed Vodafone was responsible for $2.6bn as most of the assets in the deal were located in India.

According to the Indian local law, buyers must withhold capital gains liabilities and pay them to the government.

The British telecoms giant challenged the ruling on the basis that the deal was between two foreign companies and took the case to the Supreme Court after losing a High Court ruling. Even if the tax was due, Vodafone argued that the seller should pay the amount, not the buyer.

Vodafone said in a statement: “The Court has concluded that Vodafone had no liability to account for withholding tax on its acquisition of interests in Hutchison Essar Limited (now Vodafone India Limited) in 2007.”

The company’s chief executive Vittorio Colao said: “We welcome the Supreme Court's decision, which underpins our confidence in India.”

Following the judgement, the Supreme Court ordered India’s tax office to return to Vodafone the £356m paid, and the ruling was seen as a welcome relief to India's foreign investors.

Kevin Phillips, an international tax specialist at Baker Tilly, said: “The case represents a huge relief for a host of other large multinationals that have undertaken similar deals in India.”

Chris Sanger, Ernst & Young’s head of Tax Policy added: “This decision marks the conclusion of the one of the most high profile tax disputes in India, and has been watched from around the globe. 

“The question of taxing indirect disposals has now been considered by other countries and many will be hoping that this decision will result in those countries reconsidering their approaches. The prospect of tax on indirect disposals can undermine certainty and deter foreign direct investment.”

Tax commentator Richard Murphy said: “If India's supreme court had ruled that India should have been able to levy those taxes, the corporations would all have huffed and puffed about the investment climate, but at the end of the day they would still get their foreign investors slavering to be the investors to come in.”

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