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Vodafone questions $2 bn tax on Hutchison buy

Vodafone questions imposition of income tax of over USD 2 billion tax on its deal to buy Hutchison's assets in India in 2007, saying the company was the buyer and not a seller.

twitter-logoPTI | April 20, 2011 | Updated 08:08 IST

British telecom giant Vodafone on Tuesday questioned imposition of income tax of over USD 2 billion tax on its deal to buy Hutchison's assets in India in 2007, saying the company was the buyer and not a seller.

"Explain please to me why the buyer should be taxed...we have not sold an asset, we have bought an asset. We have not made a capital gain, we have actually paid for this asset," Vodafone Plc global CEO Vittorio Colao said.

Vodafone had bought majority stake of Hutchison in Hutch-Essar mobile telecom firm (now Vodafone-Essar) in 2007 for over USD 11 billion.

The I-T department had raised a demand of about USD 2 billion on Vodafone as it failed to deduct (withhold) tax at the time of stake purchase.

The matter is being heard in the Supreme Court as the British company had challenged Indian tax authority's jurisdiction to tax the deal.

Earlier, the apex court had directed the company to submit Rs 2,500 crore along with a bank guarantee worth Rs 8,500 in the Rs 11,000-crore tax demand.

The department had on March 23 this year also sought to penalise Vodafone International, the holding company of Vodafone Essar, for failure to present Cayman Island income tax returns and certain other documents.

The I-T department had asked for these documents between January and October 2009.

"You can't assume this kind of transactions are taxable which were never before, to the point that the tax office itself calls this a tax case," Colao said.

He criticised the government's decision to bring in new players within a year of Vodafone's entry, a development that changed the market dynamics.

"For sure it has become tougher. When (within) one year of our accusition, the rules were changed and six new licences were issued. New players came into the market with very aggressive pricing and fairly disruptive business model," he said.

Colao, however, said Vodafone braved the situation and it in fact increased its market share in India as it has become the No 2 player from No 3.

"...We have actually gained the market share we thought we would gain, but at prices which were much lower than the ones we thought.

"The industry has changed, probably the decision to open to all these players has not been a very smart decision from the industry perspective, now we need to reset and start the new great phase of data (3G) which is where we are now," he added.

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