Vodafone Group Plc. v. Indian tax authorities

In 2007 Vodafone International purchased the Indian mobile telephony assets of Hong Kong-based Hutchison Whampoa Ltd.. The Indian Tax court issued that Vodafone withhold a $2.2 billion liability for capital gains tax to the Indian tax authorities. Hong Kong-based Hutchison sold its 66.98% shares in the Indian Telecom Company Hutch Essar ltd trough a holding company based in an offshore destination for $11.2 billion to Vodafone. Hutchison controlled its Indian telecom subsidiary through a Cayman Island company called CGP. CGP’s shares were sold to Vodafone, which consequently became majority owner of the Indian telecom firm. Overview

Vodafone’s arguments: India does not have jurisdiction to tax the Hutchison deal because it was structured as a transaction between two overseas entities. Indian Tax Authority’s arguments: Although Vodafone and Hutchison had conducted their transaction offshore, the deal involved Indian assets and was hence liable for capital gains tax in India. Under Indian laws, Vodafone was responsible for withholding tax on the transaction and playing it to the Indian authorities. The Arguments

Supreme Court Decision The Supreme Court ruled in favour of Vodafone in the $2 billion tax case saying Indian tax authorities have no jurisdiction over Vodafone’s 2007 purchase of the Indian mobile telephone assets of Hong Kong-based Hutchison Whampoa Ltd. when neither company is based in India.

Implications The verdict has implications for cross border M&A activity and similar pending cases before various courts. The Vodafone tax case threw an interesting question on the taxability of a non resident company acquiring shares of a resident company through an indirect route. This is a landmark case, as it is for the first time that the tax departments had sought to tax a company through a mechanism of tracing the source of acquisition.

Further Reference Further reference on this case can be found at: standard.com/content/general_pdf/012012_01.pdf standard.com/content/general_pdf/012012_01.pdf

About IPR Plaza IPR Plaza is a web-based platform that bridges the gap between IP law, accounting, tax, transfer pricing and valuation by providing general and profession-specific information on intangibles, as well as, quantifiable valuation models. IPR Plaza is empowered by different leading IP advisory firms. IPR Plaza is headquartered in the Netherlands with representation in other major countries.