GLOBAL mobile phone giant Vodafone vowed yesterday to appeal a Mumbai court ruling dismissing the company’s challenge to a $2bn (£1.35bn) tax demand over its purchase of an Indian mobile operator.
Britain-based Vodafone, the world’s largest cellular operator by revenue, snapped up Indian mobile phone operator Hutchison Essar for $11.1bn (£7.53bn) in February 2007 as it looked to expand in emerging markets.
The Bombay High Court on Wednesday (December 3) rejected the company’s petition for exemption from an income tax department demand that it pay $2bn relating to its purchase of a majority stake in India’s Hutchison Essar.
Tax officials argued Vodafone should have withheld $2bn in capital gains tax for the Indian government from the sum it paid to a unit of Hong Kong’s Hutchison Whampoa for its Indian subsidiary, Hutchison Essar.
"We will appeal" to India’s Supreme Court, a company spokesman said, adding that, "We are confident of a positive outcome ultimately."
The court had stayed the order for eight weeks "preventing the tax authority from proceeding", the spokesman noted.
The case will be closely watched by other overseas investors in India where the income tax department is reported to have its eye on several large acquisitions involving foreign companies.
The eight weeks will "allow time for Vodafone to review the grounds of the court’s decision once the written order is received and file an appeal in the Supreme Court of India", a Vodafone company statement said.
The dispute dates back to September 2007 when India’s income tax department sent a "show-cause notice" to Vodafone, asking the company why it should not pay tax on the transaction.
A source close to Vodafone told reporters the company believed conclusion of the court case could take "as long as seven years. It really is going to be a long process." India’s court system is notorious for its logjams.
The income tax department said it saw no reason why Vodafone should not be treated as an "assessee in default" because the Hutchison unit which profited from the sale of its stake in India was no longer present in the country.
"The total tax liability (for Vodafone) is estimated to be around two billion dollars," the Central Board of Direct Taxes chairman NB Singh told reporters in New Delhi yesterday.
London-listed Vodafone bought 67 per cent of Hutchison Essar in a move to boost its earnings as it struggles with saturated cellular markets and fierce competition in the developed world.
The purchase gave it a significant foothold in India, which has the fastest-growing mobile phone market in the world, adding 10 million subscribers a month.
Hutchison Essar, since rebranded in India as Vodafone Essar, is the third-largest cellular operator in the country of over 1.1 billion people with 57 million subscribers.
Vodafone says it believes the deal is not subject to India’s income tax act as it was carried out between two foreign companies. It also says the tax department was basing its claim on retroactive changes to the law and was illegal.
