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Vodafone ordered to pay deposit while it disputes Indian tax charges

As part of its ongoing dispute with India’s tax authorities, Vodafone has been ordered to pay a deposit of INR 25 billion (£345m) of an INR 112.18bn tax claim.

The tax bill has arisen from Vodafone’s purchase of a majority stake in Hutchison Essar three years ago. A Dutch subsidiary of the UK firm purchased a 67% stake in CPG Investments, a group based in the Cayman Islands which held the assets for Hutchison’s Indian operations.

Vodafone maintains that the purchase was exempt from taxation as neither of the entities involved were Indian companies. However, India’s Supreme Court claims that deals involving the transfer of assets which amass revenue within India are subject to the country’s tax authorities.

An official statement from the UK firm said: “Vodafone is confident that there is no tax liability resulting from this transaction and all the tax and legal advice it has received remains consistent with this view”.

India’s tax authorities are charging Vodafone capital gains tax on its acquisition. This charge has been somewhat controversial, as Vodafone currently retains the assets for Vodafone Essar, and capital gains tax is generally aimed at the profits realised by firms after selling assets.

The case has caught the attention of potential investors, and its outcome could have a significant impact on cross-border deals in the country. The global chief executive of Vodafone, Vittorio Colao, commented: “I have invested more in India because I do believe in the country, but…now I also need a positive outcome from the tax case and stable regulatory environment to continue.”

According to reports, the government of the Netherlands, acting on behalf of Vodafone’s Dutch subsidiary, has attempted to reach an out-of-court settlement to the dispute with India’s government.

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