A long-running battle between British wireless giant Vodafone and India’s tax authority ended in victory for Vodafone, as India’s Supreme Court decreed that Vodafone does not owe US$4.4 billion in taxes and penalties accruing from its $10.9 billion acquisition of Hutchison Essar in 2007. Handed down last Friday, the decision was well received by foreign investors who had feared that an adverse ruling against Vodafone would potentially expose them to unforeseen tax liabilities. In all, Vodafone has invested more than $15 billion to build Essar into India’s third-largest mobile phone carrier by subscribership. Sources also say that India—one of the fastest growing wireless markets in the world—represents the largest segment of Vodafone’s business in emerging international markets. Because the Essar acquisition took place between offshore subsidiaries of Vodafone and Hong Kong-based Hutchison, Vodafone has long claimed that the deal is not subject to capital gains taxes imposed on buyers involved in domestic Indian transactions. Nevertheless, tax authorities in India continued to press for payment of the tax, and the Mumbai high court concluded in September 2010 that the Essar deal was taxable because it involved the indirect transfer of assets that accrue revenue in India’s domestic market. Overturning the Mumbai court ruling, the Supreme Court sided with Vodafone in affirming that the Essar deal took place between two foreign entities and was therefore not taxable. The court also ordered the tax department to return to Vodafone, with interest, a $496 million deposit that Vodafone paid on the tax bill in November 2010. Welcoming the court’s decision, Vodafone CEO Vittorio Colao promised, “we will continue to grow our Indian business—including making significant investments in rural areas and in 3G network coverage—for the benefit of Indian consumers.”
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Vodafone not liable for taxes on Essar purchase, says India Supreme Court
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