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Vodafone Wins 25 billion India Battle

Vodafone Wins 25 billion India Battle
27 Jan 2012

Vodafone has won its $2.5 billion tax battle with the Indian tax authorities. The Supreme Court ruling marks the end of a much-discussed and widely controversial chapter on the taxation of international transactions. Chief Justice Kapadia told the court that the tax department had no jurisdiction to tax the telecommunication company's 2007 $11 billion purchase of 67% stake in Hutchison.

The verdict seems to indicate that Vodafone has won on all counts: jurisdiction, extra territorial nature of withholding tax 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 $2.5billion tax bill. Taxanders around the world react to this high profile ruling.


Taxand's Take

Mukesh Butani, Taxand India: "The Vodafone verdict will be remembered more as a victory of India's fair, impartial and independent judicial system where the rule of law prevails notwithstanding the quantum of tax involved for the treasure. The Supreme Court while rendering its judgment has called upon the tax administration for legislate laws that lend certainty to the investors and something that investors deserve 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."

Keith O'Donnell, Taxand Luxembourg: "The Vodafone case brings 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 state or implicit policy objective. This tendency to 'stretch' has been all too common recently and the uncertainty it relates 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 as hand. Taxapayers will heave a sigh of relief at the decision as the action of the tax authorities has caused anxiety among inernational investors. it is unlikely that the decision will influence the rules on other jurisdictions though the case decision could be persuasive. It all depends on the circumstances and intentions of foreign tax authorities. Nevertheless all will have to take note of the decision."

Marc Sanders, 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."

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First published in the International Tax Review, 20 January 2012

Taxand's Take Author