Fresh government battle with Vodafone likely

The stage is set for a battle with Vodafone Group if the government decides to raise a fresh tax demand on Vodafone, following the passage of the Finance Bill.

Finance Minister, Pranab Mukherjee in Parliament said, “There cannot be a situation where somebody will make huge capital gains on the assets located in India and will not pay tax to either India or the country of origin by making some arrangements through tax haven locations through a complicated setting up of series of subsidiaries.”

In May 2007, Vodafone had purchased Hutchison Telecommunications International Ltd’s 66.98% stake in Indian telecom company Hutch Essar Ltd for $11.2 billion (around Rs.52,300 crore). Hutchison controlled its Indian telecom subsidiary through a Cayman Island company called CGP. CGP’s shares were sold to Vodafone, which consequently became majority owner of the Indian telecom firm. No capital gains tax was paid.

The government and Vodafone battled the matter in the Supreme Court which was ruled in favour of Vodafone.

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