India's top court agrees to hear Vodafone tax appeal

27th September 2010, Comments 0 comments

India's top court agreed Monday to hear an appeal by British cellular giant Vodafone against a ruling that could force it to pay a tax bill of more than 2.7 billion dollars.

Vodafone filed the appeal after a lower court earlier in September ordered the company to pay taxes on its 11.1-billion-dollar acquisition in 2007 of a majority stake in Hutchison Whampoa's Indian mobile phone unit.

"We are pleased the Supreme Court has decided to hear Vodafone's appeal against the recent Bombay High Court verdict," a company spokesman said.

The landmark case is being closely watched as experts say it could have implications for purchases of Indian firms by other foreign companies who might be deterred by the possibility of large tax liabilities.

The Supreme Court top tribunal said it would set a date to hear Vodafone's appeal on October 25.

India's Income Tax department, which has called the demand for payment a "test case," has held Vodafone liable for the capital gains made by Hutchison when it offloaded the 67-percent stake in Hutchison Essar.

The Supreme Court also ordered tax authorities to determine Vodafone's exact tax liability to present to the hearing on October 25.

The spokesman for Vodafone, the world's largest mobile phone company by revenues, declined Monday to discuss the size of the possible tax bill.

But India's Central Board of Direct Taxes chairman S.S.N. Moorthy told reporters the company's liability exceeded 120 billion rupees (2.7 billion dollars) which includes taxes and interest penalty.

The Vodafone spokesman reiterated the company's "firm belief that this transaction is not subject to tax in India."

"As Vodafone is the acquiring company, we have clearly not made any capital gain on the sale" and should not be made to pay tax, the spokesman added.

Vodafone also said Indian law did not require it to deduct tax because it bought the stake from CPG Ltd. in a deal that took place in the Cayman Islands and both buyer and seller were foreign.

CPG is owned by Hong Kong-based Hutchison Telecommunications International.

However, the Bombay High Court ruled Vodafone must still pay taxes on the deal because the Hutchison Essar's operating assets are in India.

The Supreme Court decision to hear the appeal comes as Indian authorities scrutinise tax aspects of other international deals.

SABMiller, the world's second-biggest brewer, has a tax case pending over its 120-billion-dollar acquisition in 2006 of the Indian arm of Foster's from the Australian drinks group.

"This (tax) law has been in place since the 1960s, it has never been interpreted like this -- that's why the Vodafone case is seen as a test case," a tax analyst at an international consultancy told AFP.

"This has raised the nervousness level of companies considering coming to India, there's no question," added the analyst, who did not want to be named. Vodafone has faced a rough ride since it entered India, the world's fastest-growing mobile market, with cut-throat competition forcing down call rates and hitting the company's earnings.

© 2010 AFP

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