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Indian Supreme Court Denies Vodafone Appeal by Kristen A. Parillo India’s Supreme Court on January 23 declined to hear an appeal by U.K. telecom giant Vodafone in the company’s challenge of a $2 billion capital gains tax claim stemming from its 2007 merger with Indian telecom company Hutchison Essar. (For prior coverage, see Tax Notes Int’l, Dec. 15, 2008, p. 854, Doc 2008- 25691, or2008 WTD 236-3.) The Court’s decision means Vodafone now will have to reply to a show-cause notice issued in September 2007 by the Indian Income Tax Department demanding that the company explain why it should not be treated as an ‘‘assessee in default’’ for failure to withhold tax when it acquired the controlling stake in Hutchison Essar. The tax department will then take a HIGHLIGHTS ‘‘final view’’ on the issue of Vodafone’s tax liability, said Sishir Jha, a spokesman for India’s Central Board of Direct Taxes. In February 2007 Vodafone (through its Dutch unit, International Holdings BV) paid Hong Kong-based Hutchison Telecom International Ltd. (HTIL) $11.2 billion for the entire share capital of CGP Investments (Holdings), a Cayman Islands entity. CGP Investments, through a chain of intermediary entities (including Mauritius entities), indirectly held a 67 percent stake in Hutchison Essar, which at the time was India’s fourthlargest mobile phone company. India’s tax authorities claim that Vodafone should have withheld approximately $2 billion in CGT at source when it paid HTIL. The authorities maintain that because most of the assets were in India, the deal was subject to Indian CGT, and that under Indian law the buyer AP Photo/Martin Meissner Vodafone hit another dead-end as it continues to challenge Indian tax authorities' claim that the telecom giant failed to withhold $2 billion in capital gains tax. TAX NOTES INTERNATIONAL FEBRUARY 2, 2009 • 381 (C) Tax Analysts 2009. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.
HIGHLIGHTS is required to withhold CGT and pay it to the government. In September 2007 the authorities issued showcause notices to Vodafone and Vodafone Essar. (The notice to the latter demanded that the company explain why it should not be treated as an agent, or representative assessee, of Vodafone under Indian tax law.) Vodafone and Vodafone Essar challenged the showcause notices in writ petitions filed with the Bombay High Court in October 2007. Vodafone argued that it had no Indian tax liability on the transaction because the transfer of shares took place outside of India and that any tax liability lies with the seller of the shares — that is, HTIL — and not the buyer. The company submitted an amended writ petition in June 2008 challenging the constitutionality of a retroactive amendment to India’s tax laws in May 2008 that widened the scope of the term ‘‘assessee in default’’ for withholding tax purposes, thereby enabling Indian tax authorities to take action against companies that do not withhold taxes when making a transaction. The High Court dismissed Vodafone’s petition on December 3, 2008. (Vodafone Essar’s petition is still pending.) Vodafone later filed an appeal with the Indian Supreme Court. Appeal Dismissed At a January 23 hearing on the matter, the Supreme Court declined to intervene and directed the Income Tax Department to decide whether it has jurisdiction to tax the transaction, saying that ‘‘the substantial question of law raised in the petition is left open.’’ The Court said that if the authorities decide against Vodafone on the jurisdictional issue, the company can challenge the decision in the High Court. The Supreme Court seemed to suggest that Vodafone’s petition was filed prematurely. ‘‘It’s only a show-cause notice,’’ Justice S.B. Sinha reportedly told Vodafone’s counsel. The Court further questioned why Vodafone had refused to file with the Bombay High Court the agreements relating to the transaction. ‘‘Why were the details not disclosed to the High Court? It has not even been shown to us,’’ Sinha said. The government’s counsel, Additional Solicitor General Mohan Parasaran, noted that Vodafone had finally submitted the agreements. ‘‘The ball is now in the court of the income tax authority,’’ Parasaran told the media after the hearing. ‘‘It will look into all the relevant material to arrive at the conclusion. However, we are now in possession of all relevant documents of agreement between Vodafone and HTIL.’’ He added that the tax department will now issue a revised notice to Vodafone for a hearing on its tax liability. In a January 23 statement, Vodafone said, ‘‘Given the fact that the petition filed by Vodafone involves important questions of jurisdiction, the Honorable Su- preme Court of India has asked the tax authorities to decide, as a preliminary issue only, whether it has jurisdiction to proceed against Vodafone (and no other issues).’’ The company added, ‘‘Should Vodafone be aggrieved by the order of the tax authorities’ preliminary adjudication on jurisdiction, Vodafone has been permitted to again directly approach the High Court.’’ ♦ Kristen A. Parillo is a legal reporter with Tax Notes International. E-mail: kparillo@tax.org 382 • FEBRUARY 2, 2009 TAX NOTES INTERNATIONAL (C) Tax Analysts 2009. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.
Page 1 and 2: tax notes international Volume 53,
Page 3 and 4: ARGENTINA 387 Buenos Aires’ New S
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Page 7 and 8: HIGHLIGHTS from the tax accounts in
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Page 11 and 12: HIGHLIGHTS NEWS ANALYSIS Multinatio
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