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India still hunting Vodafone over Hutchison acquisition withholding tax

The Indian tax authorities are still arguing that UK-headquartered telecommunications multinational Vodafone must pay a $2.5 billion tax bill in relation to its 2007 acquisition of Hutchison Essar, the company has revealed.

Vodafone has confirmed receipt of a reminder from the Indian tax authorities that the original tax demand remains due from the company’s Hutchison Whampoa transaction in 2007, despite the Supreme Court’s decision in favour of the taxpayer in January last year.

In its Finance Bill 2012, which became law last May, the Indian government introduced retrospective amendments to the tax law which would allow it to tax any gain on the transfer of shares in a non-Indian company, which derives substantial value from underlying Indian assets.

Following fierce criticism, the government commissioned a committee led by Parthasarathi Shome to assess the appropriateness of the retrospective amendments.

In its report, the committee recommended that that retrospective application of the tax law should only be used in exceptional or the rarest of rare cases.

The Indian authorities’ continued pursuit of Vodafone suggests they are either paying little heed to the Shome committee’s report or that they consider the Vodafone transaction to be an exceptional case, and neither conclusion bodes well for Indian taxpayers.

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