Vodafone’s continuing fight against a US $2 billion tax bill stemming from its 2007 acquisition of Indian mobile phone carrier Hutchison Essar was dealt a blow last Friday by India’s Supreme Court, which refused to consider Vodafone’s appeal of a tax department ruling that holds the British wireless giant liable for capital gains taxes associated with the $11 billion transaction. In declining Vodafone’s appeal, the Supreme Court remanded the case to the tax department for further deliberation on the question of whether the department has the jurisdiction to assess the tax in question. Although the tax department contends that Vodafone is responsible for withholding capitals gain taxes on the Hutchison Essar deal, Vodafone claims that tax department lacks jurisdiction and that the transaction is exempt from taxation as the merger involved two offshore entities based in the Cayman Islands. Should the tax department affirm its jurisdiction, Vodafone would be permitted to appeal the case once again to the Mumbai High Court, which dismissed Vodafone’s initial appeal last month. Sources indicate, however, that Vodafone may still be required to pay at least half of the $2 billion tax bill by March 31 even if the company renews its appeal.
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