Vodafone could see $3-billion evaporate

06 December 2008

Mumbai: Vodafone might just see around $3 billion go up in smoke if it loses its legal battle with the Income Tax department in India over its acquisition of the erstwhile Hutch in India.

Reports said tax experts say if Vodafone loses its $1.7-billion tax claim at the courts, it could have to pay punitive damages in terms of ''compulsory interest'', and a penalty if the revenue department decides to levy one.

A report quoting an unnamed international taxation expert said that the government would be well within its rights to impose a penalty that would be sufficient to double the amount under dispute, with the contingent liability coming to around $2.5 billion including interest, ''if the matter is cleared by June 2009.''

Moreover, the tax department's initial claim on Vodafone for capital gains could also be hiked if the department decided to levy penalties and ''compulsory'' interest.
Vodafone had acquired the controlling stake in Hutchison Essar Ltd, by acquiring Hutchison Telecom International registered in the Cayman Islands in 2007.

In early 2007, Hutchison Telecom sold its 67 per cent interest in the Indian mobile phone network Hutch Essar to Vodafone for $13.1 billion, of which $2 billion was debt. Vodafone is challenging a $1.7-billion tax notice over its acquisition saying that a share purchase deal between two foreign companies was not taxable in India.

Other reports quoted sources as saying that it would be a bad case for levying penalty, as the tax liability of around $1.7 billion, the recovery could not be more than $2.1 billion.