Vodafone set to play $2bn game of pass the tax bill over Indian acquisition

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Vodafone is preparing to try to pass a $2bn Indian tax bill on to Hutchison Telecom International, part of Hutchison Whampoa, which also owns mobile phone operator 3.

The pass-the-parcel tax bill was levied on Vodafone following its acquisition of Hutchison's Indian telecoms arm, Hutchison Essar, for $11.1bn in May. But Vodafone intends to present the case that it is Hutchison that should foot the $2bn bill at a hearing in the Indian High Court Later this month on October 15.

A Vodafone spokesman told the Independent on Sunday: "It is our understanding that it is usually the seller rather than the purchaser who pays the tax. We took extensive legal and financial advice before doing the Hutchison deal and this was never flagged as a problem."

But the Indian tax authorities have taken the stance that, as the payer, Vodafone is legally responsible for deduction of tax at source, a view the mobile telecoms giant is now preparing to dispute.

According to local sources, the bill is particularly embarrassing for Vodafone as it exactly matches the sum of $2bn Vodafone had earmarked to develop and consolidate its Indian presence. The Indian market is a crucial part of the UK-based telecoms operator's global footprint. It is already Vodafone's largest market by subscribers and penetration is still only around 15 per cent.