As per the annual report published by the United-Kingdom-based operator Vodafone, the company faces tax claims and interest of over Rs 270 billion in India including Rs 142 billion for acquiring Hutchison?s stake in 2007.
The report states that Vodafone International Holdings BV has not received any formal demand for taxation from the Indian authorities following the Finance Act 2012 but it did receive a letter on January 3, 2013 reminding it of the tax demand raised prior to the Indian Supreme Court?s judgement and purporting to update the interest element of the tax demand of Rs 142 billion.
Besides the tax demand of Rs 142 billion, the company is facing tax liability of over 1 billion pounds. These claims are related to transfer pricing, disallowance of income tax holidays and applicability of value-added tax to SIM cards. According to the report, Vodafone India Limited (VIL) and Vodafone India Services Private Limited (VISPL) are involved in a number of tax cases with total claims exceeding 1 billion pound plus interest, and penalties of up to 300 per cent of the principal. At current exchange rates, one billion pounds is worth Rs 99 billion.
The claims against VIL range from disputes concerning transfer pricing and the applicability of value-added tax to SIM cards, to the disallowance of income tax holidays. The quantum of the tax claims against VIL is in the region of 900 million pounds.
VISPL has been assessed to owe tax of approximately 240 million pound plus interest of 190 million pounds (about Rs 42.5 billion) in respect of a transfer pricing margin charged for the international call centre of Hutchison prior to the transaction with Vodafone, for sale of the international call centre by VISPL to Hutchison and for alleged transfer of options held by VISPL for VIL equity shares.
Further, as regards the liability of Rs 142 billion towards acquisition of Hutchison Whampoa in 2007, the company faces tax demand following the retrospective tax amendment carried out under the regime of former United Progressive Alliance Government in 2012. However, in this case the Supreme Court had ruled in favour of Vodafone but the Indian government changed the law with retrospective effect overturning the apex court?s ruling.
Vodafone in April 2014 issued an arbitration notice to the Indian government under the Bilateral Investment Treaty for resolution of the tax dispute. The report has stated that apart from the tax cases, Vodafone?s local outfit is also facing a number of regulatory cases. Litigation remains pending in the Telecommunications Dispute Settlement Appellate Tribunal, High Courts and the Supreme Court in relation to a number of significant regulatory issues including mobile termination rates, spectrum and licence fees, licence extension and 3G intra-circle roaming. Vodafone has claimed that the Indian government has sought to impose one-time spectrum charges of about 525 million pounds on certain operating subsidiaries of VIL.
