Vodafone says India tax row could affect investment: report

20th October 2010, Comments 0 comments

British mobile giant Vodafone has warned that the outcome of a multi-billion-dollar Indian tax wrangle could be a key factor in determining future investments, a report said Wednesday.

Vodafone is appealing to India's Supreme Court over a ruling last month that could force it to pay more than 2.7 billion dollars in tax.

Vittorio Colao was quoted by leading financial daily the Economic Times as saying that since becoming chief executive officer of Vodafone Group he had "actually invested more in India because I do believe in the country".

"But of course now I also need a positive outcome from the tax case and a stable regulatory environment to continue," Colao said. "The tax issue will be incredibly important for us to determine how (investor) friendly India is."

Vodafone filed the appeal after a lower court 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.

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

The Supreme Court has said it will set a date to hear Vodafone's appeal on October 25.

"I think it is very important to have an outcome here that establishes a principle for the future," Colao told the Economic Times. "This is a concern for our investors and for other international investors."

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

Vodafone maintains 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.

© 2010 AFP

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