Vodafone set to take off in India after shock tax victory

Giant poised for listing to push home its advantage in world's fastest-growing mobile phone market
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Vodafone was yesterday celebrating a surprise victory in the Indian courts that will pave the way for the British giant to step up expansion in the world's fastest-growing mobile phone market.

The company avoided a potential £1.6bn tax bill when the Supreme Court ruled that India's tax office had no jurisdiction over its acquisition of a mobile business there five years ago.

The long-running battle has soured its presence in India, which is meant to be a growth engine for the business. Now it is over, Vodafone is working on plans for a stock market listing of its Indian subsidiary that could raise £3bn to consolidate the market.

The outcome is also good news for other foreign investors in India, who were watching the outcome of the case closely.

"We are a committed long-term investor in India and we have made clear all along that we have faith in the Indian judicial system," its chief executive Vittorio Colao said.

"We welcome the Supreme Court's decision, which underpins our confidence in India. We will continue to grow our Indian business, including making significant investments in rural areas and in 3G network coverage, for the benefit of Indian consumers."

Vodafone paid $11bn (£7.1bn) for a controlling interest in Hutchison Essar in 2007.

Indian authorities had said the deal was liable for tax because most of the assets were based in India, but Vodafone claimed that it was not liable because the deal was struck between two foreign businesses.

The Supreme Court has asked the tax office to refund 25bn rupees (£317m) with 4 per cent interest to Vodafone after it made a deposit last November.

Tax has been a hot topic for the company, which has vehemently denied stories that it saved billions in tax in a sweetheart deal with HM Revenue & Customs.

News of the tax win sent shares in Vodafone up 2.55p at 177.05p. This is the latest piece of good news for Mr Colao, who drew praise for exiting China, Japan and France, and extracted a first dividend in six years from Verizon Wireless, its American joint venture.

India's mobile phone market shows great promise but has yet to generate much financial return for Vodafone.

Analysts estimate it has spent £12bn in India so far. Although it has almost eight times as many mobile customers in India than in Britain, the vast majority are on low-spending pre-pay deals. Two years ago, it was forced to write off £2.3bn because of severe competition and the escalating cost of spectrum in the country.

A 75 per cent foreign ownership cap has prevented Vodafone taking full control of the business. Mr Colao is expected to buy out the remaining minority shareholders and list the subsidiary in India, following the template of its South African subsidiary Vodacom, which also has its own listing.

No decision has been made to press ahead, but analysts forecast a listing this year. Investment bank Rothschild is advising on it.