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Vodafone wins $2.5 billion India battle


Vodafone has won its $2.5 billion tax battle with the Indian tax authorities. Read the court ruling and what industry had to say.

Today's Supreme Court ruling marks the end of a much-discussed and widely controversial chapter on the taxation of international transactions.

Chief Justice Kapadiatold the court that the tax department has no jurisdiction to tax the telecommunication company's 2007 $11 billion purchase of a 67% stake in Hutchison.

"[The] judgment shows robustness of the Indian judiciary and will create confidence for foreign investors," said Harish Salve, Vodafone's counsel.

The verdict seems to indicate that Vodafone has won on all counts: jurisdiction, extra territorial nature of withholding provisions, no see through provisions being applicable in absence of a specific GAAR legislation, no judicial driven GAAR as they didn't plan the structure. The court ruled that the transaction was not a device to evade tax. If Vodafone had lost, it would have been hit with a $2.5 billion tax bill.

The ruling can be found here and here.

For full analysis of the ruling, listen to International Tax Review's webcast on Tuesday January 24 at 9:30pm IST (4pm GMT). Click here to register.


1. You cannot look through a transaction under section 9 of the Income Tax Act, 1961;

2. You cannot impute direct or indirect transfer of ownership of assets:

3. No territorial jurisdiction for the Indian tax authorities to proceed;

4. Extinguishment of rights argument of revenue turned down;

5. Vodafone's argument on intermediary location upheld;

6. Azadi correctness upheld - Form over substance. If it is a legitimate transaction, one does not need lift the corporate veil;

7. Hutch is not a fly by night operator;

8. Capital gains not applicable on transactions;

9. Section 195 does not apply; No question of TDS on the transaction;

10. It is a bonafide FDI transaction;

11. Rs2,500 crore ($500 miilion) to be returned to Vodafone along with interest. However at an interest rate of 4% and not the usual 6%;

12. Majority court verdict.



"Vodafone Group (Vodafone) has received the judgment of the Indian Supreme Court. The Court has concluded that Vodafone had no liability to account for withholding tax on its acquisition of interests in Hutchison Essar Limited (now Vodafone India Limited) in 2007."

Mukesh Butani, BMR Advisors - Taxand

"The Vodafone verdict will be remembered more as victory of India's fair, impartial and independent judicial system, where rule of law prevails notwithstanding the quantum of tax involved for the treasury. The Supreme Court while rendering its judgment has called upon the tax administration to legislate laws that lend certainty to the investors and something that investors deserve it as a right. This obiter dicta, in my view, is the most crucial part of the judgment. The court seems to have held all grounds in Vodafone's favour virtually rubbishing all arguments of the tax administration. Rest is history."

S Gayathri, head of tax, Essar Group

"The judgment has remarkable clarity on the various thorny issues involved and reinforces the confidence that foreign investor can place in the Indian legislature." 

R Mani, head of tax, Tata India

"I am very delighted  with this decision. If I was the head of tax at Vodafone and  could go back in time then I wouldn't have done anything differently. The government may have lost the battle, but they have won the war as the court has done a great job in saying India is open for investment"

Rupak Saha, head of tax, GE India

"Great outcome. The fact that this matter went up to Supreme Court shows that this was a critical matter for the revenue. It demonstrates the Revenue's tenacity in following up on the matter which they believed was correct. It also shows the vibrancy of India's institutions, especially the judiciary. Given the government's need for revenue collection etc and enormous stakes involved the judiciary remained firm and laid out the law as it deemed fit." 

International Chamber of Commerce

"Our major fear has been that other jurisdictions might follow the novel approach of the Indian tax authorities in the Vodafone case. Today's judgment should be read as a clear endorsement of the view that countries don't have jurisdiction to tax international transactions based on the location of underlying assets."

Pallav Gupta, head of tax, ITC

"It is obvious that the Indian parliament, if they wish to tax such transactions, should specifically provide for such legislation after considering the impact on foreign investments. Without a specific provision, there cannot be any tax on such bona fide international transactions." 

Navin Jain, head of tax, Cairn Energy India

"In my very quick reading of the judgement, it is absolutely positive where the structure exists for good time. However, if the entity has been created just before exit for tax avoidance / treaty shopping or round tripping or fraud or illegal purposes then tax authorities will continue to litigate. However, if the corporate can justify that there was business rationale for entity creation and not solely tax avoidance, the chances for success increases."

Krister Andersson, chairman of the tax policy group at Business Europe

"I think it is a good decision not only for businesses but also for the Indian government. The Vodafone tax case has negatively impacted foreign direct investment and economic activity in India, and with the independent tax ruling of the court, tax uncertainty is reduced. This is likely to boost investment in India. There is of course also a lesson to be learned for governments that we need internationally acceptable rules of how to split the tax cake between governments."

Isabel Verlinden, PwC, Belgium

"Tax systems are already complex enough to grapple with from a technical side without having to factor in what tax authorities "wished to have" based on more subjective criteria."

Ian Brimicombe, group head of tax, AstraZeneca

"Clearly Vodafone's judgment has been vindicated so arguably they would not do anything differently. However, there were lessons for all businesses from this case including the need to ensure that potential tax liabilities arising from corporate transactions are clearly allocated for the account of one or other party, even if the probability of the tax arising is remote. Alternative structures for similar commercial transactions could also be considered to increase certainty of the post-tax outcome. These considerations are especially important in the context of dealing with emerging markets where tax law is rapidly evolving."

Andrew Loan, Macfarlanes, London

"The decision gives the Indian tax authorities a bloody nose but I think most Indian tax advisers thought their approach was incorrect in this case and expected this result. Vodafone must be very relieved."

Chris Sanger, head of global tax policy, Ernst & Young

"The question of taxing indirect disposals has now been considered by other countries and many will be hoping that this decision will result in those countries reconsidering their approaches. The prospect of tax on indirect disposals can undermine certainty and deter foreign direct investment."

Sanjay Sanghvi of Khaitan & Co.

"This is indeed a great relief for taxpayers and international investors community. This ruling now brings much needed clarity and certainty on  cross-border transactions that have an impact on the change of ownership in a third jurisdiction,"

Sandy Bhogal of Mayer Brown, London

"The decision will be greeted with relief by those who have used similar offshore holding structures for inbound investments and hopefully puts an end to the uncertainty over particular territorial tax issues which threatened to undermine foreign investment into India. It will be helpful if the Indian tax authorities fully abide by this decision with an immediate change in attitude to allow taxpayers with such structures to finalise open enquiries and disputes.

Pranav Sayta, Ernst & Young

"It's a good judgment and vindicates the position taken by Vodafone. I think it will give a lot of confidence to foreign investors and businesses in general about the Indian legal system. It should help business confidence in general."

Bill Dodwell, head of tax, Deloitte UK

"The question India now faces is whether it thinks its market is so attractive that it can levy a capital gains tax on indirect sales. Many would think this would be poor economics and that it is better to look harder at the taxes levied directly on the local activities."

Gagan Kumar of Archer & Angel

"It's not only a respite for taxpayers but for the economy as well. FDI may not be challenged now."

Kevin Phillips, Baker Tilly, London

"If the Indian Supreme Court had upheld India’s right to tax an indirect disposal of shares in an Indian company in this way, it could have cast doubt on the treatment of similar transactions in other territories. Foreign investors in such territories can breathe a little easier as a result."

Marc Sanders, VMW Taxand, Netherlands

"The decision shows that the use of tax haven companies in the (acquisition) structure attracts interest from tax authorities. Hopefully this decision will influence other tax authorities not to pursue similar proceedings."

Keith O'Donnell, Head of Taxand Luxembourg

"The Vodafone case brings welcome closure to a high profile example of a common problem. Challenges by tax authorities to perceived or real cases of tax avoidance are understandable, however the challenges need to follow the rule of law. If the law isn't sufficient, then the legislators need to intervene. It should not be the role of the tax authorities to stretch the law to achieve a stated or implicit policy objective. This tendency to "stretch" has been all too common recently and the uncertainty it creates reduces the credibility of the tax system. Credit is due to the Indian Supreme Court for reaffirming the rule of law."

Veerinderjeet Singh, Taxand Malaysia

"It is a well-crafted decision which covered all the issues at hand. Taxpayers will heave a sigh of relief at the decision as the action of the tax authorities has caused great anxiety among international investors. It is unlikely that the decision will influence the rules in other jurisdictions though the case decision could be persuasive. It all depends on the circumstances and intentions of the foreign tax authorities. Nevertheless, all will have to take note of the decision."

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