Vodafone is expected to seek to challenge a change to India's tax laws which have been applied retrospectively to its US$11.1 billion purchase of a controlling stake in Hutchison Essar. Vodafone said in a statement last Friday that it has submitted an amended writ petition challenging the "constitutionality of the retrospective amendment of the changed tax law".

A legal hearing in the Bombay High Court is due to restart on Monday (23rd June) to decide on the legality of a US$2 billion tax bill based on the purchase of the Hutchison stake. If the tax department can show that the India based Vodafone-Essar acted as an "agent" of Vodafone in its overseas purchase (arranged via Mauritius) of Hutchison's shares in Hutchison-Essar, then it may be possible that Vodafone-Essar could be held liable for the tax demand.

Last month, India's government passed a new law which allows it to take action against companies which do not withhold taxes when making a transaction - the core of the tax dispute between Vodafone and the government.

Vodafone International Holdings BV, a company registered in the Netherlands, acquired the entire share capital of CGP Investments (Holdings) Ltd, a Cayman Islands based company from Hutchison International (HTIL). CGP, itself, owns 52 per cent stakes in Hutchison India.

Vodafone Essar has argued that Vodafone Holdings , CGP Investments as well as HTIL are foreign companies and as the transaction was structured through Mauritius, capital gains cannot have been accumulated within India. Also India and Mauritius have a double taxation avoidance treaty, so it would not be possible for India to apply capital gains tax on transactions that are already taxed within Mauritius.

Source:cellular-news