India may tax Vodafone US$3.75B

Government waiting on legislation to tax overseas deals that involve Indian assets from as far back as 1962, which include Vodafone's Hutchison Essar deal, report states.
Written by Ellyne Phneah, Contributor

India will look to extract US$3.75 billion from Vodafone should a law to retroactively tax overseas mergers that involve India-based assets be passed.

According to the Wall Street Journal (WSJ) report on Wednesday, the figure was derived from a basic tax of US$1.48 billion as well as a penalty of the same amount and interest charges of about US$790 million, and was confirmed by R.S. Gujral, secretary at the country's Finance Ministry's department of revenue. 

Vodafone, based in the United Kingdom, had purchased a majority stake in Hong Kong-based Hutchison Whampoa's Indian assets in 2007 for US$11.2 billion. The former acted through a Dutch subsidiary while Hutchison Whampoa used a Cayman Islands unit to complete the deal. The British company had said it was not liable for taxes because the deal was conducted outside of India, while the government argued that it should be taxed because the deal involved India-based assets, the report said.

"It would be grossly unjust if, on the basis of legislation passed five years after the event, Vodafone were to be charged tax on a gain made by someone else," the company said on Wednesday, adding that it had invested more than US$9.3 billion in its Indian operations and paid more than US$5.39 billion in taxes without repatriating any earnings.

India, in March, had introduced a bill to change tax laws to cover overseas deals that involve Indian assets, according to a separate WSJ report. The bill had been passed by the Parliament's lower house on Tuesday and is awaiting approval by the upper house, but if passed and presidential approval is obtained, it will enable India to tax transactions from as far back as 1962.

Vodafone said it is studying the legislation and will take steps to safeguard shareholder interests, and stated the law would violate the company's rights under an investment treaty between Netherlands and India.

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