Vodafone loses £1.7bn tax challenge in Indian court

An Indian court has thrown out Vodafone's challenge to a tax ruling that could leave the mobile phone giant 120bn rupees (£1.7bn) out of pocket.

The dispute centres on whether the British company owes tax to the Indian authorities following its $11.1bn acquisition of a controlling share in the local mobile network operator, Hutchison Essar, three years ago.

Yesterday, the High Court in Bombay ordered the UK group to pay capital gains tax on the purchase, which could amount to 120bn rupees. One company insider said Vodafone was likely to appeal to India's Supreme Court, adding that the case "had never been likely to end in the High Court". In a statement, Vodafone, said it "remains confident there is no tax to pay on the transaction". Lawyers were studying the court's 200-page ruling for much of the day, and said they believed Vodafone had cause for optimism if it did appeal.

The Hutchison Essar deal, completed in May 2007, was organised under a complex arrangement whereby a Dutch subsidiary of Vodafone bought the 67 per cent stake from Cayman Islands-based CGP Investments, which held the Indian telecoms assets of Hong Kong-based Hutchison Telecommunications. Four months later, the Indian government demanded that Vodafone pay capital gains tax on the purchase.

The case hinges on whether Indian tax officials have jurisdiction over a deal between two foreign entities. The court ruled that they did because Vodafone's acquisition of Hutchison Essar involved the transfer of Indian assets that accrued revenue in India.

Lawyers for Vodafone said the High Court judgment indicated that the structure of its Hutchison deal was not a sham, which gave it hope that the Supreme Court would be convinced of its argument.

The High Court told the Indian Tax Authority that it could not order Vodafone to pay the unpaid tax for eight weeks. The company said this would give it "time to review the judgment in detail and consider its next steps".

The court's ruling emerged shortly after Vodafone confirmed rumours that it was selling its entire 3.2 per cent holding in China Mobile, the country's biggest wireless operator. It has already offloaded its stake and expects to raise £4.3bn.

Vodafone, which first bought into China Mobile in 2000, said that even after the disposal the two companies would continue to co-operate in areas such as roaming, network roadmap development, multinational customers and green technology. About two-thirds of the proceeds of the sale will be returned to shareholders via a shares buyback, with the remainder used to reduce Vodafone's net debt.

Vittorio Colao, the chief executive, said the transaction "achieves a near doubling of [our] original investment in China Mobile and combines our stated portfolio strategy with ongoing cooperation with China's leading telecommunications company".

Vodafone is searching for a successor to its chairman Sir John Bond, who faced down shareholder unrest this summer.

Vodafone's potential sales

Vodafone chief executive Vittorio Colao has made it clear he does not want to be in the business of holding minority stakes. Vodafone's sale of its 3.2 per cent holding in China Mobile for an estimated $4.3bn (£2.8bn) this week, underlined his sentiments, and speculation is rife that more deals are in the pipeline.

The group is also rumoured to be looking to sell its 44 per cent stake in the French mobile firm SFR, almost certainly to Vivendi, which currently owns the rest of the company. Analysts at Jefferies have valued Vodafone's stake at £6bn, and said it was an "opportune time to exit".

Vodafone is also likely to offload its 25 per cent stake in Polish telecoms group Polkomtel. Its four local partners are keen to sell out, and reports have linked buyout groups including Apax Partners, Blackstone, TPG and CVC Capital Partners with a bid. Yet, investors and analysts are most anxious over the future of Vodafone's 45 per cent holding in Verizon Wireless. The US mobile group, whose majority owner is Verizon Communications, has not paid a dividend since 2005. Analysts predict the dividend will be resurrected in 2012 and one Vodafone insider said the company had three options. It can wait for the dividend; deepen its relationship with Verizon or sell the stake entirely. Either way, Vodafone's shareholders are demanding a resolution in the US.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Lou Reed distorted the truth about his upbringing, and since his death in 2013, biographers and memoirists have added to the myths
musicThe truth about Lou Reed's upbringing beyond the biographers' and memoirists' myths
Ed Miliband received a warm welcome in Chester
election 2015
Life and Style
Apple CEO Tim Cook announces the Apple Watch during an Apple special even
fashionIs the Apple Watch for you? Well, it depends if you want it for the fitness tech, or for the style
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own