Vodafone seeks more time to reply to Indian tax claim

Vodafone seeks more time to reply to Indian tax claim

New Delhi: British mobile phone giant Vodafone Group Plc has sought an extra two months to reply to a two-billion-dollar Indian tax claim over its purchase of India’s third-largest mobile operator.

Vodafone had been told late last month to explain by 16 November the reasons why it did not deduct tax when paying $11.2 billion to buy a majority stake in Indian mobile phone operator Hutchison Essar in 2007.

The company “has requested for further time till 29 January, 2010," junior finance minister S.S. Palanimanickam told parliament in a written reply, news reports said on Saturday.

The company has now been asked “to show cause why it should not be treated as an assessee in default for its failure to deduct and pay the tax", Palanimanickam added, according to the Press Trust of India.

The answer was tabled in the lower house of parliament late Friday.

Vodafone argues capital gains tax is usually paid by the seller, not the buyer.

But Indian tax officials argue Vodafone should have withheld two billion dollars for the Indian government from the sum it paid to a unit of Hong Kong’s Hutchison Whampoa for its Indian subsidiary.

In 2008, the Bombay High Court rejected Vodafone’s petition for exemption from the tax department demand. The Supreme Court declined to hear the case and ruled that the Central Board of Direct Taxes should rule.

The board is slated to take a “final view" after Vodafone replies to the tax notice.

Vodafone and the tax department are at loggerheads over whether the purchase of the Indian unit, which had been held by a company registered in the Cayman Islands, is subject to Indian taxes.

The company has said it “is confident that no tax is payable on this transaction".

Indian tax department officials insist tax is payable on the purchase of the company as it is located in India.

Vodafone bought 67% of Hutchison Essar -- now called Vodafone Essar -- to break into the world’s fastest-growing mobile phone market as the London-listed company struggled with slowing sales in the developed world.

But cut-throat competition in India’s increasingly crowded cellular market has hit revenues from Vodafone’s Indian arm.