Vodafone wins $2.2bn tax appeal in India

VODAFONE HAS won a $2.2 billion (€1.7 billion) legal battle against India’s tax office in a Supreme Court ruling that analysts said would encourage foreign investment and clear the way for the company’s planned initial public offering in India.

India’s reputation as an investment destination has taken a hit over the past year as the economy slowed, government reforms stalled and corruption scandals – notably in the telecoms industry – heightened concerns about government policies.

“All this talk about uncertainty for foreign investment, well, I hope for one area, this judgment clears the air,” Harish Salve, one of India’s top lawyers who argued for Vodafone in the case, said after yesterday’s verdict.

The tax demand was over Vodafone’s $11 billion deal to buy Hutchison Whampoa’s Indian mobile business in 2007. The UK-based company had appealed to the Supreme Court after losing the case in the Mumbai High Court in 2010.

The verdict, which sent Vodafone shares up as much as 2.5 per cent in London, was a rare piece of positive news for foreign investors in India over the past few months.

The court ordered the tax office to refund to Vodafone with 4 per cent interest the 25 billion rupees (€387 million) it had been asked to deposit pending a ruling.

Vodafone, the world’s largest mobile operator by revenue, had argued that Indian tax authorities had no right to tax the transaction between two foreign entities. Even if tax was due, the company had argued, it should be paid by the seller not the buyer.

Indian authorities had said the deal was liable for tax because most of the assets were in India and because, under local tax law, buyers have to pay capital gains tax liabilities to the government.

With more than 880 million mobile subscribers, India is the world’s second-biggest telecoms market after China. Vodafone has about 148 million users in the country, making up a considerable chunk of its 400 million subscribers worldwide.

The once-booming market in India has struggled in recent years, however, as 15 companies engaged in fierce competition. A massive telecoms licensing scandal that came to light in late 2010 has also dampened investor enthusiasm. – (Reuters)