Vodafone tax: Hutchison buy to cost Rs 20,000 crore more for UK telecom giant

Telecom Lead India: Vodafone Plc of the U.K. is facing Rs
20,000 crore tax demand in India following the controversial tax issue.

This will be a big blow to the financials of Vodafone which are keen to strengthen its presence in India, one of the emerging markets for the UK mobile giant.
It is interesting to note that the mobile firm never decreased its focus on Indian telecom market despite all controversies. Vodafone is one of the top telecom companies in India based on Capex in telecom infrastructure.
In a statement Vodafone said the government’s actions are grossly
unjust as Hutch was the seller. Vodafone is studying the legislation and will
take steps to safeguard shareholders’ interests.
“We are naturally disappointed that, despite very widespread concern in
India and internationally, the government has not seen fit to propose
amendments to address the uncertainty caused by retrospective tax
legislation,” said Vodafone in a statement.

The government’s tough stand is despite several rounds of
negotiations with the Vodafone CEO.

Vodafone CEO Vittorio Colao meets Indian finance minister

Recently, to solve the $2.2 billion tax issue, Vodafone
group CEO Vittorio Colao has met Indian finance minister Pranab Mukherjee.

Vodafone is seeking reconsideration of the move to
retrospectively amend laws that will have a tax implication of Rs 11,000 crore
on the mobile firm.

According to a report in Economic Times, Vodafone faces the
prospect of paying nearly three times the initial tax demand of Rs 7,900 crore
after the government retrospectively changed the law allowing it to tax
indirect transfers of Indian assets through deals struck overseas.
In Vodafone’s case, this includes the original demand of the tax authorities,
asking it to Rs 7,900 crore as it did not withhold that amount while purchasing
the Indian telecom assets of Hutchison, a penalty of an equal amount and
interest of close to Rs 4,000 crore on the original tax.
“The validation clause will revalidate the demands, including the penalty
proceedings. The total liability is about Rs 20,000 crore,” said a senior
finance ministry official.
According to Vodafone, it would be grossly unjust if, on the basis of legislation
passed five years after the event, Vodafone were to be charged tax on a gain
made by someone else, especially where the Supreme Court unambiguously ruled
that no tax was payable in India according to the laws of India in force in
Vodafone said there was no legal basis for it to withhold tax. The senior
finance ministry official said the government was not contemplating
negotiations with Vodafone to arrive at an out-of-court settlement.