It is now time for the tax department to demand its own pound of flesh from the Hutch-Vodafone deal. The tax department is claiming about $1.9 billion in capital gains tax from Hong Kong’s Hutchison Telecoms on the sale of its stake in its Indian unit to Vodafone ,a leading financial daily reported on 28 March.
The deal is yet to see the light of the day with government approval being stalled after RBI’s objections to it. Hutchison Telecommunications International Ltd (HTIL) agreed to sell its majority stake in Hutchison Essar, India’s fourth-ranked mobile services provider, to Vodafone Group Plc for $11.1 billion, last month.
HTIL controlled 67% of the joint venture, with India’s Essar Group holding the rest, although Indian authorities are looking into the ownership structure of the HTIL stake to see if it complied with foreign investment laws.HTIL’s stake included shares held by local partners such as Ghosh and investor Analjit Singh.
The notice issued to Hutchinson Essar on 23 March said that HTIL had made substantial gains from their investment in Hutchison Essar.It requested Hutchison Essar to impress upon HTIL to discharge their tax liabilities on the gains made.The report said the tax department had noted that HTIL had said the transaction was expected to generate a profit before tax of about $9.6 billion.
Foreign ownership of telecoms companies is capped at 74% in India. Two-thirds of the Essar group’s stake are held by group firms overseas, which counts as foreign ownership.Hutchison Telecom spokeswoman Mickey Shiu told Reuters on Monday that the company had met all FDI compliance.