Vodafone has paid Rs 39 billion as tax on the transaction in which the operator purchased Essar?s 33 per cent stake in Vodafone Essar for $5.46 billion in March 2011. It is believed that Vodafone paid the amount under protest.
Paying tax under protest implies that the taxpayer company will contest the tax demand in the appellate forums meant for tax disputes and will be spared the interest liability if it loses the case. Contesting without paying the tax carries with it the risk of interest payments if the case is lost.
Both, the Essar Group and Vodafone, believe that they do not have to pay any tax in India on the transaction. Unlike the time of purchasing a 67 percent stake in Hutchison Essar Limited from Hong Kong-based Hutchison Whampoa for $11.1 billion in 2007, Vodafone did not deduct tax and claimed exemption on the grounds that it is an international transaction.
Vodafone’s pact with Essar gave the Indian conglomerate the option to sell its stake in Vodafone Essar to the British firm for $5 billion. The figure of $5.46 billion to be paid to the Essar Group is higher than the $5 billion initially announced and is owing to tax on the transaction.
However, Vodafone has remained firm that it does not have to pay tax on the 2007 deal with Hutchison Whampoa. It argues that the deal was between two companies based outside India. Meanwhile, Indian authorities have countered that tax has to be paid on the transaction, as it involves an India-based asset.
