Telecom Lead India: R S Gujral, finance secretary, said
the revenue department had alerted both Vodafone and Hutch in March 2007 that
the proposed transaction was prima-facie liable to tax and Vodafone should
withhold tax before remitting money.
This statement from the finance secretary has the
potential to further damage Vodafone’s business in India. Vodafone is looking
at getting out of the ongoing $2.2 billion tax dispute case.
The Indian finance ministry also stated that similar
transactions are taxed in USA, UK and other European nations.
Finance ministry officials questioned the decision of the
British telecom major to invoke India-Netherlands investment treaty saying the
$11.2 billion deal was signed in Cayman Island.
“Such transaction (overseas M&As involving
domestic assets) are leviable to tax in USA, UK, other OECD countries and in
China,” said R S Gujral, finance secretary.
Recently, Vodafone won the $2.2 billion tax case
against the income tax department. Supreme Court Chief Justice S.H. Kapadia
ruled that the tax department has no jurisdiction over Vodafone’s purchase of
mobile assets in India.
The Indian authorities said the deal was liable for tax
because most of the assets were based in India and because under local tax law,
buyers have to withhold capital gains tax liabilities and pay them to the
government.
The Union Budget 2012 proposed amendment in Income Tax Act with retrospective effect and clarified
the definitions of property and transfer, which might affect the tax
department’s jurisdiction on the Vodafone-Hutch transaction and would bring
Vodafone-type deals under tax net and the UK-based telecom firm would be liable
to pay Rs 11,000 crore tax for its acquisition of Hutchison’s stake in
Hutchison Essar in May 2007.
However, the mobile service provider termed the
government Budget proposal grossly unjust.
Telecom major Vodafone may take action against India on tax
issue
Furthermore, Vodafone Group is considering a slew of
actions after India government decide to retrospectively tax overseas
transactions involving local assets.
editor@telecomlead.com
