I-T Dept hands Vodafone 11,218 crore tax bill

I-T Dept hands Vodafone 11,218 crore tax bill

New Delhi: The government on Friday asked Vodafone to pay Rs11,218 crore ($2.53 billion) tax on its 2007 purchase of Hutchison Whampoa Ltd’s mobile business in the country.

“The tax demand is to be paid within 30 days of the receipt of the notice of demand," the tax office said in a statement.

The Supreme Court had asked the income tax department to determine by 25 October the potential tax liability over the deal.

The apex court will set a date on 25 October for hearing Vodafone’s appeal challenging a lower court ruling that the tax authorities had jurisdiction over tax bills in cross-border deals.

Vodafone Essar, however, contested the tax notice.

“Vodafone strongly disagrees with the tax calculation released by the Indian Tax office to the media today," the company’s spokesperson said in a statement.

“Vodafone continues to believe that it is not liable for any tax on this transaction involving the transfer of a company outside of India. Further, Vodafone was the acquirer and not the vendor and has made no gain on the transaction," the spokesperson said.

The case relates to a deal in 2007 when Vodafone, through its group firm Vodafone International Holdings, bought Hutchison Telecommunications India’s (HTIL) 67% stake in Hutchison Essar for over $11 billion.

“The tax demand has been raised in pursuance to the direction of the Supreme Court of India dated 27 September to the income tax assessing officer to determine and quantify the tax liability of Vodafone within four weeks," the official statement said.

Last month, the Supreme Court had refused to stay a high court order, which has ruled that Indian income tax authorities have jurisdiction to tax Vodafone on its deal with Hutch.

In Mumbai, central board of direct taxes chairman S S N Moorthy said its tax dispute with Vodafone has not impacted foreign fund inflows as the country has received higher money from overseas.

“The issue (Vodafone tax liability) has not impacted foreign funds inflow," Moorthy told reporters on the sidelines of an event in Mumbai.

Moorthy’s assertion came in the wake of a section of India Inc voicing apprehensions that the huge tax liability raised against Vodafone could discourage multi-nationals from investing in India.

India has witnessed higher foreign funds inflow, particularly FIIs funds in stock markets. They have poured in record over Rs1 trillion in stock markets this year so far.

Vodafone has invested a total of $13 billion in India. Its India subsidiary, Vodafone Essar, plans to spend another $400 million to $500 million to roll out 3G services over the next few years.

Vodafone group chief executive Vittorio Colao told the Economic Times newspaper this week that the company’s future investment in India depends, in part, on the outcome of the tax case.

“I have actually invested more in India because I do believe in the country, but of course now I also need a positive outcome from the tax case and stable regulatory environment to continue," the paper quoted him as saying. “We need to get more certainty that regulation will not come back and bite us in order to confirm our investment."