Vodafone Plc may have to pay an additional $1 billion on its latest purchase of Essar’s 22 per cent overseas stake in its joint venture, Vodafone Essar. It is already fighting a capital tax liability of $2.6 billion on its $11.2 billion purchase of Hutchison Essar in 2007.
Vodafone had bought out the entire 33 per cent stake held by the Ruias in a $5-billion deal in March 2011. Essar’s 22 per cent stake was held in a Mauritius-based entity, while the remaining 11 per cent stake was held in India. The income tax department is also investigating Essar’s 22 per cent stake held in Mauritus for capital gains tax.
In a statement on the company’s financial results for 2010-11 Vodafone said, “The group does not believe there is any legal requirement to withhold tax in respect of these transactions but if, contrary to expectations, the Authority for Advance Rulings (AAR) directs tax to be withheld; this amount is anticipated to be approximately an additional $1 billion.”
Vodafone, through its indirect wholly owned subsidiary Euro Pacific Securities, had earlier sought confirmation from the AAR in India on whether withholding tax is due in respect of consideration payable on the acquisition of Essar Group’s offshore holding in Vodafone Essar. The ruling from AAR is expected later this month.
The company also said it will comply with the Indian foreign direct investment (FDI) guidelines and the acquisition of Essar’s 33 per cent stake will take it just over the 74 per cent threshold.
