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.

PROMOTED VIDEO
News
ebooksNow available in paperback
News
people
Sport
Diego Costa, Ross Barkley, Arsene Wenger, Brendan Rodgers, Alan Pardew and Christian Eriksen
footballRodgers is right to be looking over his shoulder, while something must be done about diving
Life and Style
gaming
Arts and Entertainment
Carl Barat and Pete Dohrety in an image from the forthcoming Libertines short film
filmsPete Doherty and Carl Barat are busy working on songs for a third album
Arts and Entertainment
films
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Ashdown Group: PR, Marketing & Events Executive - Southwark, London - £35,000

£30000 - £35000 per annum + benefits: Ashdown Group: PR Marketing & Events Exe...

Selby Jennings: C++ Developer – Hedge Fund – New York

$80000 - $110000 per annum, Benefits: Bonus and Employee Investment Scheme: Se...

Selby Jennings: Java Developer Enterprise Specialist –Paris,France

€30000 - €50000 per annum, Benefits: Competitive Bonus: Selby Jennings: Java D...

Selby Jennings: QA Engineer Lead – Hedge Fund – Chicago

$60000 - $90000 per annum, Benefits: Competitive Bonus and Employee Investment ...

Day In a Page

In a world of Saudi bullying, right-wing Israeli ministers and the twilight of Obama, Iran is looking like a possible policeman of the Gulf

Iran is shifting from pariah to possible future policeman of the Gulf

Robert Fisk on our crisis with Iran
The young are the new poor: A third of young people pushed into poverty

The young are the new poor

Sharp increase in the number of under-25s living in poverty
Greens on the march: ‘We could be on the edge of something very big’

Greens on the march

‘We could be on the edge of something very big’
Revealed: the case against Bill Cosby - through the stories of his accusers

Revealed: the case against Bill Cosby

Through the stories of his accusers
Why are words like 'mongol' and 'mongoloid' still bandied about as insults?

The Meaning of Mongol

Why are the words 'mongol' and 'mongoloid' still bandied about as insults?
Mau Mau uprising: Kenyans still waiting for justice join class action over Britain's role in the emergency

Kenyans still waiting for justice over Mau Mau uprising

Thousands join class action over Britain's role in the emergency
Isis in Iraq: The trauma of the last six months has overwhelmed the remaining Christians in the country

The last Christians in Iraq

After 2,000 years, a community will try anything – including pretending to convert to Islam – to avoid losing everything, says Patrick Cockburn
Black Friday: Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Britain braced for Black Friday
Bill Cosby's persona goes from America's dad to date-rape drugs

From America's dad to date-rape drugs

Stories of Bill Cosby's alleged sexual assaults may have circulated widely in Hollywood, but they came as a shock to fans, says Rupert Cornwell
Clare Balding: 'Women's sport is kicking off at last'

Clare Balding: 'Women's sport is kicking off at last'

As fans flock to see England women's Wembley debut against Germany, the TV presenter on an exciting 'sea change'
Oh come, all ye multi-faithful: The Christmas jumper is in fashion, but should you wear your religion on your sleeve?

Oh come, all ye multi-faithful

The Christmas jumper is in fashion, but should you wear your religion on your sleeve?
Dr Charles Heatley: The GP off to do battle in the war against Ebola

The GP off to do battle in the war against Ebola

Dr Charles Heatley on joining the NHS volunteers' team bound for Sierra Leone
Flogging vlogging: First video bloggers conquered YouTube. Now they want us to buy their books

Flogging vlogging

First video bloggers conquered YouTube. Now they want us to buy their books
Saturday Night Live vs The Daily Show: US channels wage comedy star wars

Saturday Night Live vs The Daily Show

US channels wage comedy star wars
When is a wine made in Piedmont not a Piemonte wine? When EU rules make Italian vineyards invisible

When is a wine made in Piedmont not a Piemonte wine?

When EU rules make Italian vineyards invisible