Vodafone pays INR39 billion tax bill for March 2011 Vodafone Essar stake purchase under protest

13 Sep 2011

UK-based Vodafone Group has reportedly, under protest, paid a tax bill of INR39 billion (USD825 million) related to the March 2011 purchase of the 33% stake held by the Essar Group in Indian mobile network operator Vodafone Essar. According to the Indian Economic Times, with Vodafone still fighting a USD2 billion tax demand related to its 2007 acquisition of Vodafone Essar – then known as Hutchison Essar – local tax authorities confirmed the payment linked to the more recent purchase. However, with Vodafone paying under protest this effectively confirms that the British outfit plans to contest the tax demand, and should it win it will be spared interest liability should it lose the case; contesting without paying the tax owed carried with it the risk of liability for interest payments if the case is lost.

With regards to the other outstanding tax bill, as noted in TeleGeography’s GlobalComms Database, in December 2008 Vodafone Group filed a petition against the charges, after claims that the UK company was liable for capital gains tax, as most of the assets it bought were based in India. Vodafone challenged the charge, arguing that Indian law at the time did not require it to withhold tax on the acquisition, and that capital gains tax was usually paid by the seller, not the buyer. After its initial petition was dismissed Vodafone launched a fresh appeal to the Indian Supreme Court in January 2009, but in September 2010 it was finally announced that the Mumbai High Court had dismissed the appeal, ruling that Vodafone must pay capital gains tax. Vodafone subsequently warned in July 2011 that the USD2 billion bill could more than double as it prepared to contest the matter once more in the Supreme Court, with Andy Halford, Vodafone’s chief financial officer, noting that the Indian authorities had threatened to impose penalties on the company for non-payment. The Supreme Court case got underway at the start of August 2011, and Vodafone has said it expects to see a final judgement in the matter by the end of the year.

India, Vodafone Group, Vodafone India