Vodafone appeals again over capital gains tax on its Indian acquisition

BRITISH mobile phone operator Vodafone yesterday filed an appeal against the Indian tax department’s latest court order over its purchase of a local mobile phone company.

Vodafone bought a majority stake in Hutchison Essar for $11.2bn (£7.7bn) in 2007. It contends that the sale did not take place on Indian soil, as it acquired the firm from a parent company based in the Cayman Islands.

“Vodafone does not believe that the Tax Authority has jurisdiction to seek to tax the transaction with Hutchison”, said a spokesperson.

“Vodafone remains fully confident that no tax is payable and the legal advice we have received unanimously agrees.”

Estimates have put the potential tax bill at $2.1bn (£1.5bn).

The world’s biggest mobile phone operator by sales has filed the appeal with the Bombay High Court against one of the tax department’s “show case notices” arguing the firm owes capital gains tax on the deal.

Indian authorities maintain that Vodafone should have withheld tax from the sale on their behalf, and have given the firm until 14 June to explain its actions.

India has not yet formally asked Vodafone to pay tax on the deal.

The long-running case is the latest in a string of expensive problems for Vodafone’s Indian business.

Last month it paid £1.74bn for a section of the Indian 3G mobile phone spectrum, three times more than some predictions, following a fierce bidding war with other operators.