Vodafone has sought an opinion from the Authority for Advance Rulings on the tax implications of its purchase of Essar’s stake in Vodafone Essar for $5 billion, say news reports.
The operator has sought clarification on whether it will need to deduct tax on payment made to Essar for the 22 per cent stake held by the Indian company through the Mauritius entity.
While the income tax department is awaiting the details of the transaction before it takes a decision, it is believed that only the sale of 11 per cent stake that was held by Essar locally will face capital gains tax but not the 22 per cent that was held through the Mauritius entity.
Under the India-Mauritius treaty, there is no capital gains tax on investments routed through Mauritius. Essar has sold 11 per cent stake (locally held) for $1.2 billion to Vodafone. Therefore, it is believed that it may have to pay about $120 million in tax.
