Vodafone given 30 days to pay £1.6bn Indian tax demand

British telecoms giant Vodafone was yesterday given just 30 days to pay a £1.6bn tax bill in India in an escalation of its row with authorities there.

The demand dates from 2007, when Vodafone paid $11bn for control of the Indian mobile phone business Hutchison Essar. The British firm believes the deal was structured to avoid Indian capital gains taxes, but Bombay's High Court has since ruled otherwise.

Vodafone is appealing against that decision and will take its case to the Supreme Court in Delhi on Monday. However, yesterday, it emerged that the Indian Tax Office is not waiting to hear the outcome of that hearing before beginning the process ofrecovering the back-taxes which it believes it is owed – and has given Vodafone just 30 days to pay up.

The demand is the first formal notice to Vodafone of how much it must pay should it lose the legal argument, and the 112.1bn rupee bill was at the top end of what analysts had feared.

However, the company has vowed to keep fighting the demand. "Vodafone strongly disagrees with the tax calculation," a spokesman for the company said. "The tax authority is attempting to interpret Indian law as it has never been interpreted for the past 50 years, and this interpretation also goes against internationally recognised tax norms."

This latest development will concern a number of international companies which have invested in India using deals structured similarly to Vodafone's takeover.

The row could also jeopardise Vodafone's relationships within the subcontinent. The company's chief executive, Vittorio Colao, is on record as having said that future investments in India might depend on the outcome of this case.

"I do believe in the country, but of course I now also need a positive outcome from the tax case and a stable regulatory environment to continue," Mr Colao told India's Economic Times this week.

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