Vodafone's Indian tax issues loom large again

Vodafone could face a major tax bill that would dwarf the £1 billion it will pay for Cable & Wireless Worldwide, according to multiple reports.

The Indian government is pressing ahead with plans to retroactively tax companies such as Vodafone who buy assets in the country. The new legislation could mean Vodafone is forced to hand over $2.2 billion (£1.4 billion) as a result of the deal to buy a 67 per cent stake in Hutchison Whampoa's Indian mobile unit in 2007. Some reports now say the amount could be in the region of $3.75 billion (£2.32 billion).

In response, Vodafone said that the retrospective tax law amendment is "grossly unjust" and said it will take all possible steps to safeguard its shareholders' interest.

In January Vodafone won an Indian Supreme Court ruling over a long-running tax dispute and would have had to pay the £1.4 billion if it had lost the case. Instead, Vodafone was awarded a $496 million(£319 million) tax refund, plus 4 per cent interest, from the government. In the 2007 deal, Vodafone acted through a Dutch subsidiary, while Hutchison used a Cayman Islands unit. Vodafone has said it did not need to pay taxes on the deal since it was conducted overseas. The Indian government disagreed and said taxes were due because the acquisition involved the transfer of India-based assets, according to the Wall Street Journal.

In addition to the tax issue, there is still lingering concern that Vodafone could face a possible hitch in its plans to acquire CWW, according to a report in Mobile News. Orbis Investment Management, the largest shareholder in CWW with a 19 per cent stake, is not happy with Vodafone's offer of 38p a share. Orbis does have the ability to block the deal should it so wish, although it has not said it will do so.

Mobile News points out that if Vodafone walks away, the share price will plummet and Orbis may face a long wait before the share price recovers to its current level. Vodafone is now the only bidder for the UK fixed operator after Tata Communications abandoned its offer.

For more:
- see this Mobile News article
- see this WSJ article (sub. req.)
- see this Daily Telegraph article
- see this rediff article

Related articles:
Vodafone wins Indian tax case, but no IPO imminent
Vodafone catapults into global services market with Cable & Wireless purchase
Vodafone given CW&W bid extension
Tata abandons offer for Cable & Wireless Worldwide, leaving Vodafone as sole bidder
Rumour Mill: Vodafone again touted as Verizon acquistion target
Vodafone hikes full-year outlook on growth in emerging markets