Vodafone’s India tax bill could hit $4bn (India)Retrospective law amendment could see operator faced with $2 billion tax bill, plus $2 billion penalty.
Vodafone could be forced to pay more than $4 billion if it loses its court case relating to tax claims by the Indian government over its Hutchison Essar acquisition, reports the Financial Times.
“The U.K. mobile phone group could face a penalty of 100% of the tax owed plus 12% interest a year if it loses the case,” said the report, without citing sources.
India is trying to levy $2 billion of capital gains tax on Vodafone’s 2007 $11 billion acquisition of Hutchison Essar, despite Vodafone being the buyer and not the seller of the asset, on the grounds it should have withheld the tax on behalf of the government.
Vodafone argues that the transaction is not taxable because the deal itself took place overseas.
The acquisition of Essar saw a Dutch company controlled by Vodafone pay a Cayman Island-registered company controlled by Hutchison Whampoa $11 billion to buy another Cayman Island entity that indirectly held a controlling stake in the Indian operator.
However, India’s government contends that since Essar’s operating assets were based in India, the deal is subject to capital gains tax.
Friday’s development relates to a retrospective amendment to the country’s tax law, which states that an entity that did not withhold tax when it should have done is classified as in default.
This means that if Vodafone loses its case, the government can then award a penalty which would bring the final sum payable by the operator to over $4 billion.
According to the Financial Times, Vodafone opposes the amendment on the grounds that India’s constitution forbids imposing such penalties retrospectively.
Both sides concluded their arguments in the Bombay High Court on Wednesday, and a verdict is expected in the next few weeks.
India’s Economic Times this week reported that both sides have said they will appeal the decision in the Supreme Court if they lose the case.
The case is being closely watched due to the potential implications for other similar deals in the country, and the outcome will set a precedent for future foreign investment in India.
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