Indian tax authorities ask Vodafone to pay over Rs.112 bn

NEW DELHI - Indian tax authorities Friday asked global mobile firm Vodafone to pay over Rs.112 billion (around $2.53 billion) as tax in the 2007 purchase of Hutchinson Whampoa’s mobile business. Vodafone maintained it was not liable to pay and also questioned the calculation of the assessment.

The tax department’s claim of its right to tax Vodafone was upheld by the Supreme Court, which asked the authorities to determine the extent of Vodafone’s liabilities within four weeks.

“The Income Tax Department today (Friday) issued an order raising a tax demand of Rs.11,217.95 crore on Vodafone International Holdings BV for failure to deduct tax as required under section 195 of the Act before making a payment of $11.07 billion to Hutchinson Telecommunications International limited,” said a statement from the finance ministry.

Vodafone, however, continued to maintain that it was not liable to pay any tax for the transaction.

“Vodafone strongly disagrees with the tax calculation released by the Indian Tax Office to the media today,” said the company in a statement.

The company has to pay the tax within 30 days of the receipt of the notice, but the mobile service provider said it did not agree with the tax calculation.

“This calculation, as well as any appropriate stay of payment, will be reviewed when the matter comes before the Supreme Court on 25 October 2010,” the statement added.

Vodafone bought a 67 percent stake sold by Hutchinson Whampoa - the foreign partner of the mobile company - for $11.07 billion and has been embroiled in a dispute with tax authorities who are claiming $2.53 billion from the Britain-based global mobile major.

Vodafone has been contending all this while that as the deal involved transfer of shares of a foreign company between two non-residents, the tax authorities had no jurisdiction over the deal.

However, this argument of the company was not accepted by the Bombay High Court, which ruled in favour of the Income Tax department, following which Vodafone filed an appeal in the Supreme Court.

But, the apex court Sep 27 did not grant any relief to Vodafone and asked the Income Tax assessing officer to determine and quantify the tax liability of Vodafone within four weeks.

Vodafone contended that it was the acquirer in the 2007 deal and had made no gain in the transaction.

“In this ‘test case’, the tax authority is attempting to interpret Indian law as it has never been interpreted for the past 50 years, and this interpretation also goes against internationally recognized tax norms,” said the company.