MUMBAI,
JUNE 03, 2010: THE Indian Income Tax department has
declared
that it has full jurisdiction to tax Vodafone, the telecom service
provider,
on its USD 11.1billion deal with Hutchison in February 2007. It is
expected
to send its tax demand to Vodafone in a few days.
The tax demand is expected to be around US $2 billion.
In February 2007, Vodafone had paid US $11.1 billion for a 67
per cent stake of Hutchison in Hutchison-Essar, an Indian company,
renamed Vodafone Essar.
The government gave its regulatory clearances following which
the tax department issued a show cause notice to Vodafone on the ground
that it had not deducted tax, estimated at US $2 billion.
The Bombay High Court dismissed Vodafone's appeal against the
tax notice. In January last year, the Supreme Court refused to intervene
in the tax dispute and asked the department to check whether it had the
jurisdiction to proceed further in the tax case.
According to the Revenue department, Vodafone was the buyer and
Hong Kong's Hutchison was the seller of shares in Hutchison Essar, an
Indian company, whereby, the UK group should have withheld capital gains
tax on the deal, even though it took place overseas between two
offshore companies.
The deal was finalized when Vodafone International, a Dutch
company controlled by Vodafone, paid the US $11 billion to a Cayman
island entity run by Hutchison for another Cayman Island company that
indirectly held a controlling stake in the Indian company.
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