If Vodafone loses a landmark court case with the Indian government it could face a tax bill of more than USD4 billion, more than double the amount originally expected, writes the Financial Times. According to the report, the British mobile phone group could face a penalty of 100% of the tax owed, plus 12% interest a year if it is unsuccessful. The Indian government wants to tax Vodafone’s USD11 billion purchase of a controlling 67% stake in Hutchison Essar, the country’s fourth largest wireless operator, completed in May 2007. India’s tax authorities are arguing that, even though Vodafone was the buyer, the UK group should have withheld an estimated USD2 billion of capital gains tax on the government’s behalf. Hearings on the case in the High Court in Mumbai ended this week; a verdict is expected in the coming weeks. Both sides are expected to appeal to India’s highest judicial body, the Supreme Court in New Delhi, should they lose the case.
Vodafone argues the transaction is not taxable in India because it took place overseas. Under the Essar sale, a Dutch company controlled by Vodafone paid the USD11 billion to a Cayman Island entity run by Hutchison Whampoa, the seller, for another Cayman Island company that indirectly held a controlling stake in the India-based mobile operator, which was rebranded Vodafone Essar in September 2007.