Vodafone’s Indian tax nightmare is over, after a court ruled it isn’t liable to pay nearly 113 billion rupees (€1.7 billion) on its acquisition of Hutchison Whampoa’s local operation.
India’s Supreme Court on Friday ruled the government isn’t eligible to receive capital gains tax relating to Vodafone’s purchase of Hutchison Whampoa’s business because neither firm is a domestic company. India’s government must now return 25 billion rupees Vodafone paid as a deposit on the total bill, with interest.
Vodafone acknowledged the ruling in a brief statement that confirmed simply the firm has “no liability to account for withholding tax on its acquisition of interests in Hutchison Essar Limited (now Vodafone India Limited) in 2007.”
The operator maintained the deal wasn’t subject to the local tax because the transaction was handled offshore, however it was ordered to stump up the sum by a lower court in 2010. India’s government worked out the total bill just before the Supreme Court trial began in late 2010.
While the verdict clears Vodafone to pursue an IPO in India, it will also boost the confidence of foreign investors looking to buy into the country, Rajiv Kumar, secretary general of the Federation of Indian Chambers of Commerce and Industry says.
“Stability of institutional processes is one of the important requirements for attracting FDI [foreign direct investment]. This decision will re-inject confidence in cross border mergers and acquisitions and will further augment the FDI coming to India,” he states.