New Delhi: Hong Kong-listed CK Hutchison Holdings Ltd may not yet be off the hook for the 2007 sale of its Indian telecom business, held through a complex web of subsidiaries across countries, to British telecom giant Vodafone Group Plc in an $11 billion offshore deal.

The income tax department is considering seeking the administrative assistance of tax authorities in countries where parties to the transaction are either incorporated or have assets. That could bring Hutchison, which sold its entire 67% stake in Hutchison Essar Ltd—later renamed Vodafone India Ltd—within the reach of India’s tax recovery effort.

A person informed about the tax department’s deliberations on the matter said on condition of anonymity that mutual administrative assistance between tax authorities is possible in such instances to pursue recovery efforts under tax treaties.

According to the CK Hutchison Holdings website, the group has operations in about 50 countries across sectors such as ports, infrastructure, energy, telecom and finance, India has comprehensive treaties on avoidable double taxation and fiscal evasion with some of these countries.

India does not have a comprehensive tax treaty with Hong Kong, where Hutchison is based, but has a tax treaty with Cayman Islands, where it is incorporated.

“The ongoing arbitration with Vodafone will continue as per the process," said the person cited above. Vodafone is pursuing international arbitration against India’s tax claims under the bilateral investment treaty between India and the Netherlands. The 2007 transaction escaped capital gains tax in India as it was an offshore deal in which shares of CGP Investments (Holdings) Ltd, a subsidiary of Hutchison registered in Cayman Islands, held the parent’s stake in Hutchison Essar. Hutchison’s stake was acquired by Vodafone’s Netherlands arm Vodafone International Holdings BV.

India also has comprehensive tax treaties with the UK as well as Mauritius and a treaty on double tax avoidance and fiscal evasion with the Netherlands.

An email sent to Hutchison remained unanswered at the time of going to press. Vodafone India declined to comment.

CK Hutchison Holdings had informed the Hong Kong stock exchange on Monday that its arm Hutchison Telecommunications International Ltd, which held the group’s Indian assets before their sale a decade ago, had on 9 August received a “penalty order of approximately Rs79 billion" relating to the transaction.

The company had in February received a tax demand of Rs7,900 crore plus aggregate interest on the tax of about Rs16,430 crore, said Hutchison’s notice to stock exchange.

The tax dues arises a controversial 2012 retrospective change in law making the offshore deal taxable in India after the Supreme Court ruled in January that year that the transaction was not taxable.

“Accordingly, the company continues to believe that the above-mentioned orders (tax demands raised in February and August) would not have any effect on the company’s financial condition or the results of its operations for any period," said Hutchison.

Though the Narendra Modi government has reiterated its commitment of providing a predictable and stable tax regime to investors, its inability to address these legacy issues inherited from the Congress-led government has left investors disappointed.

“While the government has taken a lot of steps to boost the confidence of foreign investors, the few disputes arising from the 2012 retrospective amendment to income tax law still remain a thorny issue," said Amit Maheshwari, partner, Ashok Maheshwary and Associates Llp.

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