Indian judiciary thus free market economy and ensures Free FGoreign Capital Inflow!Vodafone judgment will speed up cross-border deals!Vodafone Group Plc won a $2.2 billion (1.4 billion pounds) legal battle against India's tax office in a Supreme Court ruling that analysts said would encourage foreign investment and clear the way for the company's planned initial public offering in India.
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Indian judiciary thus free market economy and ensures Free FGoreign Capital Inflow!Vodafone judgment will speed up cross-border deals!Vodafone Group Plc won a $2.2 billion (1.4 billion pounds) legal battle against India's tax office in a Supreme Court ruling that analysts said would encourage foreign investment and clear the way for the company's planned initial public offering in India.
India's reputation as an investment destination has taken a hit over the past year as the economy slowed, government reforms stalled and corruption scandals - notably in the telecoms industry - heightened concerns about government policies.
"All this talk about uncertainty for foreign investment, well, I hope for one area, this judgment clears the air," Harish Salve, one of India's top lawyers who argued for Vodafone in the case, said after the verdict was announced on Friday.
The tax demand was over Vodafone's $11 billion deal to buy Hutchison Whampoa Ltd's Indian mobile business in 2007. The UK-based company had appealed to the Supreme Court after losing the case in the Bombay High Court in 2010.
The verdict, which sent Vodafone shares up as much as 2.5 percent in London, was a rare piece of positive news for foreign investors in India over the past few months.
Just last month, plans to open up the country's $450 billion retail sector to global supermarket operators were derailed by political opposition.
Investment proposals in India plunged 45 percent to a five-year low in 2011 as companies halted projects, many citing red tape and administrative gridlock, according to the Centre for Monitoring Indian Economy.
Full coverage
Essar to seek tax refund in Vodafone stake dealBusiness Standard - 1 hour ago The Essar group is seeking a refund of the $883 million (Rs 4426 crore) Vodafone Plc withheld as tax to pay the income-tax department while buying 22 per cent stake in Vodafone Essar from Essar. The move comes a day after the Supreme Court verdict ... Vodafone judgment will speed up cross-border dealsHindu Business Line - 1 hour ago If there is an important fallout of the Supreme Court's Vodafone judgment, it is that the time taken to conclude cross-border deals or offshore transactions involving Indian assets will come down. This will be the case to the extent that the structure ... Essar Group Seeks $883 Million Refund From Vodafone, WSJ ReportsBusinessWeek - 1 hour ago By Adam Haigh and Rajhkumar K Shaaw Jan. 21 (Bloomberg) -- Essar Group wants Vodafone Group Plc to refund the $883 million that it withheld to pay Indian authorities as a tax when the UK phone operator bought a 22 percent stake in Vodafone Essar Ltd., ... Avoid nullifying VodafoneHindu Business Line - 1 hour ago The Supreme Court has done India proud by the landmark Vodafone decision. Despite the huge tax involved, the court did not hesitate to rightly reject the Income-Tax Department's claim that Vodafone should have deducted tax at source while purchasing ... Vodafone ruling will end uncertaintyBusiness Standard - 2 hours ago The much awaited decision in the Vodafone case reaffirms the confidence of investors all across the globe in the Indian judiciary. Bringing a major relief to the foreign investors interested in participating in the India growth story, the judgment ... Vodafone Tax-Case Victory Clears Way for Indian Wireless IPOSan Francisco Chronicle - 3 hours ago Jan. 21 (Bloomberg) -- Vodafone Group Plc's victory in a four-year-long tax dispute in India clears the way for an initial public offering that may value its local mobile-phone unit at as much as 11.3 billion pounds ($17.6 billion). ... CORRECT: India's Essar Group To Seek $883M Tax Refund In 2011 JV Stake-Sale ...Wall Street Journal (India) - 5 hours ago ("India's Essar Group To Seek $883M Tax Refund In 2010 JV Stake-Sale Deal With Vodafone-Source," at 1204 GMT, misstated the year of the deal in the headline. The correct version follows:) By Kenan Machado and Romit Guha MUMBAI (Dow Jones)--Two ... | RelatedTimeline of articlesNumber of sources covering this story
ImagesHindu Business ... Bloomberg The Hindu AFP Oneindia Hindu Business ... Hindu Business ... Hindu Business ... IBNLive.com VideosVodafone wins tax battle against government IBNLive - Jan 20, 2012 *Mint - Jan 20, 2012 *Vodafone wins tax dispute, government to refund Rs 2,500 crore IBNLive - Jan 20, 2012  *Vodafone wins Rs 11,000 cr tax dispute case in SC NewsX - Jan 20, 2012 *SC judgment on Vodafone tax case today NewsX - Jan 19, 2012 |
21 January 2012 Last updated at 09:29 GMT
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TwitterArticle written byDouglas FraserBusiness and economy editor, Scotland
Going global, on India's termsThere was a last-minute rush to prepare for the 2010 Delhi Commonwealth Games
To drive in India, you need "good brake, good horn and good luck".You'll also need a good driver - and it was Pandey, one such negotiator of Delhi's anarchic roads, who offered this sage advice with a big smile.
As we set off into the chill and thick city fog, he also offered up a prayer to Ganesha, the friendly, elephant-headed god and remover of obstacles, of which Pandey faces many.
I've been in India this week, to report on its trade links with Scotland - about its thirst for whisky, and the fear that opening up the market to Scotch could be "a catastrophe" for domestic distillers of what they call here Indian-made foreign liquor.
I've been to the desert, near Pakistan, where Edinburgh firm Cairn Energy is selling up, distributing more than £2bn to its shareholders, and leaving behind a big legacy.
In only eight years, Cairn has gone from oil discovery to a giant processing plant, bringing its second field on stream this week.
But it's also become a focus in India and beyond for concerns about the country's resistance to foreign economic influence, because its long-delayed sale of a controlling stake in its Indian assets showed how thrawn and sclerotic India's government can be with international investors.
Vodafone has faced a similar problem, for very different reasons. It avoided tax by buying a large Indian asset through an offshore tax haven, which the Indian tax authorities sought to claw back through changing the law retrospectively.
Only yesterday, in Delhi's High Court, did the company win a five-year battle against a £1.5bn tax bill.
The top official in the commerce department and India's chief trade negotiator, Rahul Khullar, is disarmingly candid about the general problem, if not those specific instances.
"In the course of last year, it was annus horribilis for us," he told me. "It was a very bad year. Our reputation in international markets took a bit of a beating.
"Our credibility took a bit of a beating, and most important, political initiative for reform and change was decelerated, and that sent bad signals to investors.
"So in terms of answering, did we do enough? Not nearly enough."
Calculated risk
The problems for foreign investors have been explained to me in various ways.
India will get things sorted out, says one, but only in its own sweet time - probably at the last minute.
The Delhi Commonwealth Games were like that, only just making it.
Indians still cringe about the international embarrassment of that last minute rush.
The chief organiser has been cringing in jail for nine months on corruption charges, until released on bail this week.
Indians are taking a calculated risk, says another expert eye on Delhi.
Most know they need foreign investors, but they also know access to the country's resources and, above all, a market of 1.2 billion people should come at a price, not always financial.
So be aware that things will have to be done differently. McDonald's, for example, sells the same iconic, standardised Big Mac almost everywhere else, but in India - no beef, more spice.
A global product, on India's terms.
Indian itch
The other theme I've been exploring this week is for a programme to be broadcast in the spring.
I've been asking what the Indian economic boom times mean for us, and above all, for the work we do, not least at a time when our economy looks bust.
I've been a visitor to this country for 30 years, having found my first visit lodged the country under my skin, requiring me to return occasionally to scratch that Indian itch.
And I've been stunned at the changes here, particularly among the young, educated, above all the women, for whom the 21st Century is looking quite appealing.
Pandey drove me to meet some of them in Noida, a satellite town south of Delhi, and a focus for India's new, digital economy, where Tata Consultancy Services sells these young science graduates' analytical skills to pharmaceutical researchers in the west.
This is no call centre. This £32bn Indian company alone employs more than 200,000 people across a range of such IT-based work.
Its average employee is 27, with a starting salary around £3,000, eager to get on and to become more qualified.
If you can digitise it, they can handle the work, and they're moving rapidly to grab the more skilled end of the market.
Ramshackle democracy
In tackling our jobs challenge - far away, on the edge of crisis-hit Europe - it's worth noting that these are the people shaping the global economy and our future.
How long before India's number one in the world, I asked one young woman at Tata.
"We don't have to be number one," she said with a shrug.
"We can share it out with others, but we'll be up there in a few years." How many years? "Maybe five to ten."
It's striking that, barring war or environmental shock, India is on track to sustain big growth figures for three or four decades.
And unlike China, it's got the ramshackle but resilient democracy with which to resolve the tensions that brings.
India's got what it takes - so long as it also has good brake, good horn and good luck.
Article written by Douglas FraserDouglas FraserBusiness and economy editor, Scotlandhttp://www.bbc.co.uk/news/uk-scotland-16657725
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As Vodafone's tax cloud lifts, will pending cases triumph?
Published on Fri, Jan 20, 2012 at 21:17 | Source : Moneycontrol.comUpdated at Sat, Jan 21, 2012 at 17:34
In a landmark ruling, the Supreme Court's ruling favoured India's second largest telecom operator with regards to overseas transactions.
The Supreme Court today set aside the Bombay High Court judgment asking Vodafone International Holdings to pay Rs 11,000 crore to the Income Tax department, on the ground that Indian authorities do not have jurisdiction on an overseas transaction.
Pranav Sayta of E&Y says the judgement is clear cut - the rule of law will prevail. He also believes that this verdict can help the other pending cases get speedy rulings. "This judgement will bring in more clarity in M&A transactions," he said.
Shefali Goradia of BMR Advisors also agrees that this judgement will assist new doctrines. She also acknowledges that the absence of the Direct Tax Code is challenging for the Income Tax department.
Below is an edited transcript of their interview on CNBC-TV18. Watch the accompanying videos for more.
Q: What is the big message to the government that the Supreme Court has sent out? If you look at what the Supreme Court order it says doctrines like look through are matters of policy. If the government wants to actually get into that, they need to come out with specific legislations which is perhaps what we could see once the Direct Tax Code comes into effect?
Goradia: The key message to the government seems to be that if they want to apply the look through principles, they must bring that specifically in the statute and the tax treaties. If the tax treaties don't have the limitation of benefits then they cannot look through those entities and lift the corporate veil to look at the beneficial owners. So, it's a very strong order giving a very strong message to the government to look into the policy reforms and bring in certainty in the tax policies.
Q: As far as Vodafone is concerned, this is a landmark judgment that will set a precedent for other pending matters as well. There are five other pending matters at this point in time, where all of those will be discussed and deliberated as per the merits of those particular cases. But what sort of a precedent and what is the larger implication of this particular judgment?
Sayta: There are very far-reaching implications really of this judgment because it very unequivocally and clearly dictates that the rule of law will prevail that the letter of law will be respected by and large. It goes on to say that this is not a case of a sham transaction. This is a bona fide structure from 1994. It also clearly suggests that the transfer really was through a Cayman Island company called CGP and not really an asset located in India.
So the principles that it has respected is that the corporate entity overseas has to be respected. We cannot pierce the corporate veil unless it is a sham and this is no case of a sham. I would feel the principles that have been enunciated in this judgment are going to be extremely helpful and useful. For all practical purposes I would feel that there is a very strong chance that the rest of the cases relying on this will now see success.
Watch the accompanying videos for the entire interview...
Also watch the videos of Daksha Baxi, the executive director Of Khaitan And Company's interview on CNBC-TV18.
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http://www.moneycontrol.com/news/business/as-vodafone39s-tax-cloud-lifts-will-pending-cases-triumph_655168.html
"I think it's a good decision," said Pranav Sayta, a tax partner, Ernst & Young. "It will help investments into India. It's definitely good for the industry. The confidence level on the Indian judicial process should certainly go up now."
"CAPITAL PUNISHMENT"
The demand for $2.2 billion in capital gains tax "would amount to imposing capital punishment for capital investment since it lacks authority of law...," K.S. Radhakrishnan, one of the three judges ruling on the case, said in his order.
The court ordered the tax office to refund to Vodafone with 4 percent interest the 25 billion rupees ($496 million) it had been asked to deposit pending a ruling.
Vodafone, the world's largest mobile operator by revenue, had argued that Indian tax authorities had no right to tax the transaction between two foreign entities.
Even if tax was due, the company had argued, it should be paid by the seller not the buyer.
Indian authorities had said the deal was liable for tax because most of the assets were in India and because under local tax law, buyers have to withhold capital gains tax liabilities and pay them to the government.
Indian Finance Minister Pranab Mukherjee told reporters he would study the court's judgment. He did not elaborate.
CUT-THROAT COMPETITION
Vodafone is the largest overseas corporate investor in India but has come to symbolise the perils foreign firms face doing business in the country.
The company has made India the centrepiece of its fast-growing emerging markets portfolio, designed to balance out slowing growth in more mature European territories.
But while it became India's third-largest mobile carrier by subscribers, Vodafone took an impairment charge of $3.56 billion on its Indian operations in 2010 due to cut-throat competition and skyrocketing spectrum costs.
Vodafone agreed to buy out Indian partner Essar Group for $5 billion last year, putting an end to their highly fractious relationship that had spilled over into the open.
"We are a committed long-term investor in India," Vodafone Chief Executive Vittorio Colao said in a statement after the court verdict. "We will continue to grow our Indian business -- including making significant investments in rural areas and in 3G network coverage," he said.
With more than 880 million mobile subscribers, India is the world's second-biggest telecoms market after China. Vodafone has about 148 million users in the country, making up a considerable chunk of its 400 million subscribers worldwide.
The once-booming market has struggled in recent years, however, as 15 companies engaged in fierce competition.
A massive telecoms licensing scandal that came to light in late 2010 has also dampened investor enthusiasm.
Vodafone has said it has plans to launch an initial public offering of shares in its Indian business but has not set a timeframe.
Robin Bienenstock, an analyst at Bernstein Research in London, said she expected Vodafone to announce an IPO for 30 percent of the Indian business later this year that could raise 3.4 billion pounds ($5.26 billion).
"The resolution ... will reassure investors, the majority of whom we think had resigned themselves to Vodafone being required to pay, and also to those who suspected that the final liability may have been greater than the original demand," Bienenstock said in a note.
Frid
ay's ruling will also be welcomed by other multi-national companies that could potentially face tax issues in India over cross-border deals.
Last year, India's finance ministry said it was looking into whether Kraft Foods would have to pay taxes to Indian authorities in its $19 billion takeover of Cadbury in 2010.
Global brewer SABMiller and AT&T Inc are also involved in tax disputes in India, media reports have said.
Vodafone judgment will speed up cross-border deals
K.R. SRIVATSSHARE · COMMENT · PRINT · T+
Revenue Dept may get more refund claims from non-residents who deposited tax for similar transactions
NEW DELHI, JAN. 21:
If there is an important fallout of the Supreme Court's Vodafone judgment, it is that the time taken to conclude cross-border deals or offshore transactions involving Indian assets will come down.
This will be the case to the extent that the structure adopted in such deals follows the Vodafone transaction or the principles enunciated in the Vodafone judgment, say tax experts.
The time taken for concluding cross-border deals is expected to come down as the parties involved in the transactions will not spend considerable time in sorting out tax indemnity issues, applying for advance rulings, withholding tax certificates, etc. "Tax indemnities will not be phased out as a corollary to the Vodafone judgment. The extent of significance of tax indemnities would depend upon extent of applicability of Vodafone judgment and principles settled by it. But the time taken will come down as the Vodafone judgment has settled certain principles of law," Mr Amit Singhania, Principal Associate, Amarchand & Mangaldas, told Business Line.
Currently, parties involved get into negotiations, consuming significant time on who would control litigation, what would be the point of invocation of indemnity and other issues. This is all the more required to deal with situations where notices are served by revenue authorities on the buyer for not withholding tax or making them the representative assessee. Time spent on such aspects can be productively utilised with the apex court ruling on Vodafone establishing that transfer of shares between non-residents would not be subjected to tax here even if the underlying assets are situated in India.
Mr Amrish Shah, Partner and National Leader for Transaction Tax, Ernst & Young, said that the time taken for concluding cross-border deals will come down post the Vodafone judgment.
MORE CLAIMS
Another fallout of the judgment is that the Revenue Department will now get more refund claims from those non-residents who deposited tax for transactions similar to the Vodafone-Hutch deal."The Vodafone judgment will have impact on revenue not only on account of refund of the deposit paid by the telecom giant but it will attract the refunds in other similar transactions," Mr Singhania said, adding that a sizeable number of offshore transactions involving Indian assets have happened since 2007 post the Vodafone-Hutch deal.
Mr Amrish Shah said that the number of transactions similar to Vodafone-Hutch deal size may not be that many, but certainly sellers will now claim refunds of tax withheld in offshore transactions.
Reacting to the Vodafone judgment, Mr Rohan Shah, Managing Partner, Economic Laws Practice, said that the judgment takes a clear position on India's territorial jurisdiction to tax. It holds that transfer of shares outside India is not taxable in India.
The verdict will bring a certainty in the minds of global investors regarding Indian tax consequences in case of sale of their investments, said Dr Suresh Surana, Founder of RSM Astute Consulting Group.
krsrivats@thehindu.co.in
Keywords: Supreme Court, Vodafone judgment, cross-border deals, claims
http://www.thehindubusinessline.com/industry-and-economy/info-tech/article2820733.ece?homepage=true&ref=wl_home
Vodafone not liable to pay Rs 11,297-cr tax: Apex court
ARUN S.SHARE · PRINT · T+
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Transaction between two overseas firms falls outside tax jurisdiction
NEW DELHI, JAN 20:
In a huge relief to Vodafone and a major boost to foreign investor confidence in India, the Supreme Court on Friday held in a landmark verdict that the telecom giant is not liable to be taxed on its $11.2-billion acquisition of Hutchison's Indian telecom assets.
The Income Tax (I-T) Department had raised a demand of $2.6 billion (Rs 11,297 crore) on the 2007 Vodafone-Hutch deal.
The apex court directed the I-T Department to return to Vodafone Rs 2,500 crore (which was deposited by the company as directed by the apex court) with 4 per cent interest within two months from Friday. The Bench headed by the Chief Justice of India, Mr S H Kapadia, also asked the Supreme Court Registry to give back to Vodafone the bank guarantee of Rs 8,500 crore within four weeks.
The "Offshore Transaction herein is a bona fide structured Foreign Direct Investment into India which fell outside India's territorial tax jurisdiction, hence not taxable," the court said.
It said the Offshore Transaction between Hutchison Telecommunications International Ltd (a Cayman Islands company) and Vodafone International Holdings (a company incorporated in Netherlands) was "not a sham or tax avoidant preordained transaction" but only evidences participative investment.
Also noting that the subject matter of the transaction was the transfer of the CGP (a company incorporated in Cayman Islands), the court said, "Consequently, the Indian Tax Authority had no territorial tax jurisdiction to tax the said Offshore Transaction."
Significantly, the judgement by the Chief Justice and Justice Mr Swatanter Kumar observed, "FDI flows towards location with a strong governance infrastructure which includes enactment of laws and how well the legal system works. Certainty is integral to rule of law."
"Certainty and stability form the basic foundation of any fiscal system. Tax policy certainty is crucial for taxpayers (including foreign investors) to make rational economic choices in the most efficient manner," it said, adding, "Investors should know where they stand. It also helps the tax administration in enforcing the provisions of the taxing laws."
The judgement further said it is for the Government to incorporate specific provisions in treaties and in laws so as to avoid conflicting views.
Pointing out that "Hutchison is not a fly by night operator'' as their structure was in place in India from 1994-(February) 2007, the court also highlighted that, "We find that from 2002-03 to 2010-11 the Group has contributed Rs 20,242 crore towards direct and indirect taxes on its business operations in India."
In this case, there is no transfer of capital assets situated in India, the court noted, adding that the "sale of CGP share was a genuine business transaction, not a fraudulent or dubious method to avoid capital gains tax."
"Revenue (Department) cannot tax a subject without a statute to support…every tax payer is entitled to arrange his affairs so that his taxes shall be as low as possible and he is not bound to choose that pattern which will replenish the treasury," the court observed.
Mr Justice K.S. Radhakrishnan, who concurred with the other two judges on the Bench (the Chief Justice and Mr Justice Mr Kumar), in a separate judgement said the tax demand (on the deal) amounted to 'capital punishment on capital investment'. He also said since the deal was between two companies incorporated overseas – who have no income or fiscal assets in India -- and since their transaction was carried out offshore, it has "no nexus with the underlying assets in India."
The I-T Department had claimed that Vodafone failed to deduct tax at source while acquiring the controlling stake.
Earlier, the Bombay High Court had said the I-T Department has the jurisdiction to claim the tax on Vodafone's acquisition of Hutchison's mobile business in India as the underlying assets were in the country. Vodafone had moved the Supreme Court against this order denying any tax liability as the deal was between two foreign entities and was done offshore.
Keywords: Vodafone, income-tax, Supreme Court, investor confidence
http://www.thehindubusinessline.com/industry-and-economy/info-tech/article2817059.eceVodafone verdict: When law is not on your side
S.MURLIDHARANSHARE · COMMENT (1) · PRINT · T+
The case shows that the letter always trumps the spirit in any law.
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The earnest if plaintive plea of the Income Tax Department that the Hong Kong-based Hutchison Whampoa's sale of 67 per cent equity in the Cayman Island-based CGP Investment Ltd to Vodafone International Holdings BV, Netherlands for a whopping US $ 11.2 billion was effectively for acquiring control over the telecom operations in India of Hutchison-Essar Ltd (later christened as Vodafone India), has not cut any ice with the Supreme Court.
Despite the contention that the Cayman Island company was a special purpose vehicle floated in a tax haven exclusively to nurse the investments in its Indian operations, the Apex Court has not only absolved Vodafone of any tax liability in India, but also given it a clean chit. As a result, the Court has asked its registry to release the bank guarantee for Rs 8,500 crore furnished by Vodafone India in compliance with its earlier direction, and also directed the I-T Department to refund the tax of Rs 2,500 crore paid under protest in compliance once again with its order — the two aggregating to a demand of Rs 11,000 crore.
LEGAL GOOGLY
The Department had it coming. The law was simply not on its side, though equity perhaps was. Its contention that the whole convoluted and layered transaction ultimately was about the shares of the Indian telecom operations cannot be shrugged off. But a fiscal law more than anything else is not about equity. It is, on the contrary, about the letter of the law.
The Direct Taxes Code 2010 (DTC) before the Parliament vide Section 123 seeks to cut the Gordian knot by permitting the tax authorities to term certain transactions as "impermissible avoidance arrangement" and reach out for the substance. But it appears the executive has to do better than this because once again it would be up against an impenetrable wall — how can one put a tax shovel into an Indian company when capital gains have been earned by a non-resident?
The law as it stands, the one on the strength of which the Department went for Vodafone India's jugular, does not support its case. It wanted the Indian operating company to be the representative assessee of Hutchison, which made the capital gain by selling out to Vodafone. But the truth of the matter was the Indian operating company never had any business connection with Hutchison. If anything it has had such a relationship only with the Cayman Island SPV, which alas happened to be the buyer of controlling interest.
Indeed, the Department was trying to brazen it out and went on to treat the Indian operating company as an assessee in default for not deducting tax at source. Pray, deduct from what? Tax can be deducted at source only by the payer. Similarly, tax can be collected at source only by the receiver. Vodafone India admittedly was neither the payer nor the receiver of the staggering US $11 billion. In the event, there was no way it could have complied with the TDS provisions. To be sure, all residents have to deduct tax at source before making any payment to non-residents.
But then, it is not even the I-T Department's case that the Indian operating company forked out funds to Hutchison on behalf of Vodafone International Holdings, the Netherlands based subsidiary of the Vodafone group UK.
DTC CHANGE NOT ENOUGH
Yet, one cannot help sympathising with the Department. Its pleadings do strike a chord. The whole deal was about the shares of the Indian telecom operations of Hutchison-Essar. And the underlying assets of shares are solid telecom assets, including infrastructure located in India. These were the arguments that weighed with the Bombay High Court, when it upheld the Department's contention that it had jurisdiction to tax the deal, as the underlying assets represented by the shares, at the end of the day, were located in India.
The Apex Court, however, has viewed the deal differently — as a transaction between two non-residents consummated abroad on which Indian tax authorities simply have no jurisdiction.
It is not enough to term smart, structured transactions as "impermissible avoidance arrangements". The DTC may have to bring in something similar to the business connection rule that the tax authorities now rely on to extract tax from deals that may be consummated outside India, but which are courtesy a business connection in India.
But that would not be easy, given the fact that in these cases, the Department goes for the Indian resident's (with whom the non-resident has business connection and through the exercise of which he earns and receives income abroad) jugular.
In Vodafone-like situations, on the other hand, the Indian resident does not make the payments. It would take the cooperation of the government of the foreign country, where the SPV is located, to squeeze tax out of the non-residents. However, experience shows that such cooperation would always remain a pipe dream with governments of tax havens looking askance at the shenanigans of the crooks and the sophisticates. Tax information exchange agreements with some of these countries might, if at all, bring in information. But not money.
(The author is a New Delhi-based chartered accountant.)
(This article was published on January 20, 2012)
Keywords: Vodafone verdict, Hutchison Whampoa, sale of 67 per cent equity, income-tax, Supreme Court
http://www.thehindubusinessline.com/opinion/article2817582.ece?homepage=true| Vodafone ruling will end uncertainty |
| Narendra Rohira / Transaction Tax Partner/ Ernst & Young Jan 22, 2012, 00:21 IST |
*The much awaited decision in the Vodafone case reaffirms the confidence of investors all across the globe in the Indian judiciary. Bringing a major relief to the foreign investors interested in participating in the India growth story, the judgment pronounced by Hon'ble Chief Justice of India S H Kapadia, Swatanter Kumar and K S Radhakrish-nan clears the air surrounding the Indian regulatory environment which may enhance the foreign direct investment inflows into India.After five years of battling with the Indian revenue, Vodafone finally sighed relief with the Supreme Court (SC) clearly stating that offshore transactions between non-residents cannot be taxed in India. Here is a quick recap of what transpired in the past five years.
The SC order acknowledges the use of holding companies and investment structures by investors for commercial purpose and expresses that the use of these elements in international structures does not imply tax avoidance.
While, accepting that not all foreign direct investment which is routed through Mauritius originates from Mauritius, it comments on a raging controversy on the India-Mauritius treaty benefits. It reinforces that unless the Revenue authorities establish that Mauritius structure was interposed just before the disposal, merely to evade tax, investors having a tax residency certificate cannot be denied the benefits of the India-Mauritius treaty.
While echoing the concerns of the investor community, the SC order seems to be an attempt to marry economic and legal realities. The order definitely would improve the country's image in the global environment. While, there are some filters in the SC order, it alleviates prevailing uncertainty.
The order concedes that unless the anti abuse provisions are incorporated in the law or limitation of benefits provisions are incorporated in the treaties, absent a specific provision, Revenue authorities cannot look through a transaction.
In the words of the SC, "Certainty and stability form the basic foundation of any fiscal system. Tax Policy certainty is crucial for taxpayers to make rational economic choices in the most efficient manner."
The decision of the SC is a milestone development in the taxation of international transactions and on the judicial approach to tax avoidance. The judgement may end uncertainty for companies such as AT&T, Sanofi, GE, SABMiller and many others grappling a similar issue with the Indian revenue authorities. This case is, perhaps, the first in the world where the issue of taxation on indirect transfer of shares was being litigated before a country's highest judicial forum. The principles emanating from this ruling could, therefore, have ramifications beyond India.
While the Indian revenue kitty loses Rs 11,000 crore, all is not lost for the Government. The issue of indirect transfers has come to the fore by this litigation and it may give an opportunity to Indian Government to pass the legislation and bring the DTC provision of taxing indirect transfers and general anti-avoidance provisions, well before its time.
http://www.business-standard.com/india/news/vodafone-ruling-will-end-uncertainty/462503/
Vodafone tax decision will equally apply to all other similar cases: Mukesh Butani, BMR Advisors
ET Now Jan 20, 2012, 04.00PM ISTTags:
In an interview with ET Now, Mukesh Butani, Founding Partner, BMR Advisors shares his views about theSupreme Court verdict on Vodafone tax case. Excerpts:
ET Now: What is your reaction to the landmark judgement victory for Vodafone and clarity on cross border M&A taxation.
Mukesh Butani: Clearly, it is a welcome decision and something that was keenly awaited not just because of the case for Vodafone but also the impact that it has on the similar other open transactions. So, without having read the judgement based on what the headline news is available, it seems that it is a clear victory for Vodafone but one needs to read the judgement and find out if there is anything hidden in it.
ET Now: Are there any other judgements that come to your mind?
Mukesh Butani: Well, there are no judgements that will be impacted. The issue is that similar to the Vodafone structure there were several cross border M&A transactions as a result of which shares were transferred at an optional level and these represented underlying assets in India or underlying businesses in India.
Currently, many of these cases were being investigated by the income tax department but given the quantum that was involved in Vodafone all of those investigations were kept on abeyance. So, the principles of Vodafone decision will equally apply to all those cases and hopefully it will put an end to all the other cases that could potentially have landed in litigation.
ET Now: What about the foreign investment into the country because this was an overhang as far as the FDI inflow to the country was concerned. Now with the certainty on taxation as far as the cross border deals are concerned, do you see more foreign investment coming in?
Mukesh Butani: I have always had a view that Vodafone was not a roadblock or impediment as far as foreign direct investment is concerned. With Vodafone controversy up before the courts there was a lot of uncertainty surrounding mergers and acquisitions and costs in relation to the mergers and acquisitions. As businesses were not able to estimate whether they should factor in the capital gains cost or not there was an element of uncertainty and the element of uncertainty was very significant because there was 20% of the gains arising out of M&A transactions and that is quite a substantial spread.
So, I guess that uncertainty has gone away and businesses are now in a position to plan their affairs with greater level of clarity. If the Vodafone verdict is entirely in its name then there would be no tax liability associated with transactions that had a structure similar to Vodafone. Hence, the uncertainly goes away. So, there is no doubt in my mind that the uncertainty factor is a very comforting advantage to pave way for M&A transactions.
ET Now: Do you now anticipate the government to make some kind of legislative change to ensure that the cross border deals do get taxed because it is an opportunity for the government to make some serious money as well?
Mukesh Butani: There is already a proposal in the direct taxes code which essentially addresses taxability of such transactions. Those proposals prescribe as a quantitative test where - if there is an offshore transfer of shares and the market value of the underlying assets located in India is above 50% then those transactions are taxable.
So, if you are referring to legislative amendments to deal with similar transactions then yes, the proposal is there in the direct taxes code. But if you are talking about a proposal to amend the existing law then I am not very sure about it. Legislative powers can override judicial powers. So, nothing precludes the government from coming out with a law. Given all the history surrounding the Vodafone controversy, I doubt if the government will do any amendments to the income tax law other than what is being proposed in the direct taxes code.
http://articles.economictimes.indiatimes.com/2012-01-20/news/30647068_1_vodafone-tax-judgement-cross-border
Vodafone India
From Wikipedia, the free encyclopedia| * | This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (January 2012) |
| * | |
| Industry | |
| Predecessor(s) | Hutchison Essar |
| Founded | 1994 |
| Headquarters | |
| Products | Wireless broadbandservices |
| Website |
Vodafone India, formerly Vodafone Essar and Hutchison Essar, is the second largest mobile network operator in India after Airtel. It is based in Mumbai, Maharashtra and which operates nationally. [1] It has approximately 146.84 million customers as of November 2011.
On July 2011, Vodafone Group agreed terms for the buy-out of its partner Essar from its Indian mobile phone business. The UK firm paid $5.46 billion to its Indian counterpart to take Essar out of its 33% stake in the Indian subsidiary. It will leave Vodafone owning 74% of the Indian business, while the other 26% will be owned by Indian investors, in compliance with Indian law.[2] On 11 February, 2007, Vodafone agreed to acquire the controlling interest of 67% held byLi Ka Shing Holdings in Hutch-Essar for US$11.1 billion, pipping Reliance Communications, Hinduja Group, and Essar Group, which is the owner of the remaining 33%. The whole company was valued at USD 18.8 billion.[3] The transaction closed on 8 May, 2007. It offers both prepaidand postpaid GSM cellular phone coverage throughout India with good presence in the metros.
Vodafone India provides 2.75G services based on 900 MHz and 1800 MHz digital GSM technology. Vodafone India launched 3G services in the country in the January-March quarter of 2011 and plans to spend up to $500 million within two years on its 3G networks.[4]
Contents[hide] |
[edit]History
[edit]Hutchison Essar (1992-2007)
In 1992, Hutchison Whampoa and its Indian business partner – Max Group, established a company that in 1994 was awarded a licence to provide mobile telecommunications services in Bombay (now Mumbai) and launched commercial services as Hutchison Max in November 1995. In Delhi, Uttar Pradesh (East), Rajasthan and Haryana, Essar Group was the major partner. But later Hutch took the majority stake.By the time of Hutchison Telecom's Initial Public Offering in 2004, Hutchison Whampoa had acquired interests in six mobile telecommunications operators providing service in 13 of India's 23 licence areas and following the completion of the acquisition of BPL Mobile that number increased to 16. In 2006, it announced the acquisition of a company (Essar Spacetel — A subsidiary of Essar Group) that held licence applications for the seven remaining licence areas.
Initially, the company grew its business in the largest wireless markets in India — in cities like Mumbai, Delhi and Kolkata. In these densely populated urban areas it was able to establish a robust network, well known brand and large distribution network – all vital to long-term success in India. Then it also targeted business users and high-end post-paid customers which helped Hutchison Essar to consistently generate a higher Average Revenue Per User (ARPU) than its competitors. By adopting this focused growth plan, it was able to establish leading positions in India's largest markets providing the resources to expand its footprint nationwide.
In February 2007, Hutchison Telecom announced that it had entered into a binding agreement with a subsidiary of Vodafone Group Plc to sell its 67% direct and indirect equity and loan interests in Hutchison Essar Limited for a total cash consideration (before costs, expenses and interests) of approximately $11.1 billion.
Hutch was often praised for its award winning advertisements which all follow a clean, minimalist look. A recurrent theme is that its message "Hi" stands out visibly though it uses only white letters on red background. Another successful ad campaign in 2003 featured a pug named Cheeka following a boy around in unlikely places, with the tagline, "Wherever you go, our network follows." The simple yet powerful advertisement campaigns won it many admirers. Ads featuring the pug were continued by Vodafone even after rebranding. The brand subsequently introduced ZooZoos which gained even higher popularity than was created by the Pug. Vodafone's creative agency is O&M while Harit Nagpal was the Marketing Director during the various phases of it's brand evolution.
[edit]Timeline
1992: Hutchison Whampoa and Max Group establish Hutchison Max2000: Acquisition of Delhi operations and entry into Calcutta (now Kolkata) and Gujarat markets through Essar acquisition
2001: Won auction for licences to operate GSM services in Karnataka, Andhra Pradesh and Chennai
A 'You and I' print advertisement of Hutch featuringCheeka (dog)
2003: Acquired AirCel Digilink (ADIL — ESSAR Subsidiary) which operated in Rajastan, Uttar Pradesh East and Haryana telecom circles and rebranded it 'Hutch'.2004: Launched in three additional telecom circles of India namely Punjab, Uttar Pradesh (West) and West Bengal.
2005: Acquired BPL Mobile operations in 3 circles. This left BPL with operations only in Mumbai, where it still operates under the brand 'Loop Mobile'.
2007: Vodafone acquires a 67% stake in Hutchison Essar for $10.7 billion. The company is renamed Vodafone Essar. 'Hutch' is rebranded to 'Vodafone'.
2008: Vodafone acquires the licences in remaining 7 circles and has starts its pending operations inMadhya Pradesh circle, as well as in Orissa, Assam, North East and Bihar.
2011: Vodafone Group buys out its partner Essar from its Indian mobile phone business. It paid $5.46 billion to take Essar out of its 33% stake in the Indian subsidiary. It left Vodafone owning 74% of the Indian business.
[edit]Vodafone acquires Essar's Stake
On March 31, 2011, Vodafone Group Plc announced that it would buy an additional 33% stake in its Indian joint venture for $5 billion after partner Essar Group exercised an option to sell the holding in the mobile-phone operator. The deal will raise Vodafone's stake to 75%. Essar will exit the company after it implemented a put option over 22% of the venture. Vodafone exercised its call option to buy an 11% stake.[5]In 2007, Vodafone granted options to Essar that would enable the conglomerate to sell its entire stake for $5bn, or to dispose of part of the 33 per cent shareholding at an independently appraised fair market value. In January 2011, Vodafone objected to Essar's plans to place part of its 33% stake in India Securities, a small public company. Vodafone feared the move would give an inflated market value to Vodafone Essar.[6] It had approached the market regulator SEBI and also filed a petition in the Madras High Court.
The final shareholding pattern post this deal was not provided by the company as it was not clear whether Vodafone's stake would exceed the 74 per cent FDI limit. Indian laws don't allow foreign companies to own more than 74% in a local mobile-phone operator. Vodafone has assured it will comply with local rules. Vodafone will have to sell that 1% to some Indian entity, or they'll have to consider an initial public offering. Vodafone also said that final settlement is anticipated to be completed by November 2011. The completion of the deal would be subject to meeting certain conditions which include Reserve Bank of India's permission as well as valuation of the deal.[7]
[edit]Vodafone-Hutchison Tax Case
Vodafone was embroiled in a $2.5 billion tax dispute with the Indian Income Tax Department over its purchase of Hutshison Essar Telecom services in April 2007. It was being alleged by the Indian Tax authorities that the transaction involved purchase of assets of an Indian Company, and therefore the transaction, or part thereof was liable to be taxed in India.[8]Vodafone Group Plc. entered India in 2007 through a subsidiary based in the Netherlands, which acquired Hutchison Telecommunications International Ltd's (HTIL) Hutchison Telecommunications International Limited stake in Hutchison Essar Ltd (HEL)—the joint venture that held and operated telecom licences in India. This Cayman Islands transaction, along with several related agreements, gave Vodafone control over 67% of HEL and extinguished Hong Kong-based Hutchison's rights of control in India, a deal that cost the world's largest telco $11.2 billion at the time.[9]
The crux of the dispute had been whether or not the Indian Income Tax Department has jurisdiction over the transaction. Vodafone had maintained from the outset that it is not liable to pay tax in India, and even if tax were somehow payable, then it should be Hutchison to bear the tax liability.
In January 2012, the Indian Supreme Court passed the judgement in favor of Vodafone, saying that the Indian Income tax department had "no jurisdiction" to levy tax on overseas transaction between companies incorporated outside India.[10]
[edit]3G
On 19 May 2010, the 3G spectrum auction in India ended. Vodafone paid
Delhi, Kanpur, Gujarat, Haryana, Kolkata, Maharashtra & Goa, Mumbai, Tamil Nadu, Uttar Pradesh (East) and West Bengal.[11] Vodafone also operates 3G services in Kerala, Andhra Pradesh and Uttar Pradesh (West) through an agreement with Idea and in Karnataka through an agreement with Airtel.. This gives Vodafone a 3G presence in 13 out of 22 circles in India.On 16 March, 2011, Vodafone launched 3G services in Uttar Pradesh (East) in the city of Lucknow.[12] Vodafone had already launched limited 3G services in Chennai and Delhi earlier, but the Uttar Pradesh (East) launch counts as its first fully commercial launch. This makes Vodafone the fifth private operator (seventh overall) to launch its 3G services in the country following Tata Docomo, Reliance Communications,Airtel and Aircel.
On 23rd June, 2011 Vodafone launched 3G service in Kerala by joining with Idea in an Intra Circle Roaming agreement. Initially Vodafone 3G services will be available in the following cities in Kerala – Ernakulam, Aluva, Calicut, Koyilandy, Alappuzha, Cherthala, Malappuram and Manjeri.
[edit]Subscriber Base
Following is the Vodafone India subscriber base statistics as on June 2011.[13]| Telecom Cicle | No. of Subscribers |
| 1,49,10,573 | |
| 1,42,37,217 | |
| 1,19,62,824 | |
| 1,10,40,815 | |
| 93,30,557 | |
| 87,11,277 | |
| 92,34,369 | |
| 73,47,024 | |
| 77,88,376 | |
| 71,34,576 | |
| 65,91,039 | |
| 55,35,177 | |
| 52,44,148 | |
| 43,73,647 | |
| 41,32,392 | |
| 41,70,943 | |
| 31,35,580 | |
| 21,13,992 | |
| 23,38,159 | |
| 16,50,109 | |
| 8,61,826 | |
| 5,65,253 | |
| 3,57,430 | |
| 58,87,113 |
Total number of Vodafone India Subscribers : 14,15,19,840, i.e. 23.63% of the total 59,87,79,674 Indian mobile phone subscribers.
Source : http://coai.in/statistics.php
[edit]Inactive Subscribers
On 19 December 2011, Vodafone said it would discontinue mobile services of prepaid customers whose connections are lying unused — with no voice calls (incoming or outgoing), SMS and data usage — for any continuous period of 60 days. "This guideline has been implemented because the Department of Telecommunications' stringent guideline for allocation of new number series based on subscribers in VLR (visitor location register) has created acute shortage of numbers, for any telecom company," Vodafone said in a statement. The mobile operator further said that new customers would be intimated of the deactivation process in their starter kits, while existing customers would be informed via SMS and outbound calls, wherever possible.[14]As per industry estimates, around 25% of the total subscriber base is lying unused. DoT has asked mobile operators to screen their users and allocate unused numbers to new subscribers.
[edit]Competitors
Vodafone competes with 14 other mobile operators throughout India. They are Aircel, Airtel, Cheers Mobile, BSNL, Idea, Loop Mobile, MTNL,MTS, Ping Mobile, Reliance Communications, S Tel, Tata DoCoMo, Tata Indicom, Uninor, Videocon and Virgin Mobile.[edit]Awards and recognition
The Brand Trust Report,[15] 2011 published by Trust Research Advisory has ranked Vodafone[16] as the 16th most trusted brand in India.[edit]See also
[edit]References
- ^ "Vodafone Essar Ltd: Vodafone India — Mobile Communications worldwide". Vodafone.in. 2009-03-31. Retrieved 2009-05-01.
- ^ Vodafone finalises India mobile subsidiary buyout
- ^ "/ Companies / Telecoms — Investors welcome Vodafone deal". Ft.com. Retrieved 2009-05-01.
- ^ "News By Industry". The Times Of India. 21 October 2010.
- ^ Vodafone to Buy Additional Essar India Stake for $5 billion – Bloomberg
- ^ FT.com / Telecoms – Vodafone pays $5bn for Essar stake
- ^ Essar exits Vodafone-Essar joint venture for $5 billion – NDTV Profit
- ^ [1]
- ^ [2].
- ^ [3]
- ^ India's 3G Auction Ends; Operator And Circle-Wise Results – MediaNama
- ^ GSMA Mobile Business Briefing – Telecoms news from around the world
- ^ http://coai.com/Sub%20Figs/GSM%202011/All%20india%20GSM%20sub%20figures%20Jun%202011.xls
- ^ http://www.thehindu.com/business/companies/article2729391.ece
- ^ http://www.financialexpress.com/news/a-matter-of-trust/747288/
- ^ http://www.rediff.com/business/slide-show/slide-show-1-indias-50-most-trusted-brands/20110120.htm
[edit]External links
*- Vodafone India Official website
- Vodafone Group Official website
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Categories:- Companies based in Mumbai
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