Vodafone headed for new India tax battle

Dylan Bushell-Embling
13 Sep 2011

Vodafone is gearing up for another tax dispute with the Indian government over its telecom investments in the nation.

The operator has agreed to pay 39 billion rupees ($826 million) in tax on its $5.4 billion buyout of JV partner Essar's stake in Vodafone Essar – but only under protest, Economic Timesreported.

Vodafone plans to contest the tax payment in local courts. Paying the tax under duress guarantees that if it loses the case, it will not be hit with extra interest payments.

The company is already fighting a 112 billion rupee tax bill over the 2007 acquisition of its initial stake in the venture from then-owner Hutchison.

In that case, Vodafone held out from paying the tax, contending that the transaction took place overseas between two international companies.

Vodafone lost its initial case in the High Court, but has appealed the ruling in the Supreme Court. In November last year, the court ordered Vodafone to pay 25 billion rupees worth of the bill upfront, a sum that will be returned if the company is triumphant.

Vodafone arranged to buy out Essar from the Indian venture in April. The purchase price was originally set to be $5 billion, but was raised after Essar held out for more. The company is now expected to float at least 10% of the Indian venture via an IPO.

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