Vodafone annual report allows for Indian tax demand of Rs27,000 cr

Vodafone Plc is facing tax claims and related interest charges of more than Rs27,000 crore in India, which includes Rs14,200 crore for acquiring Hutchison's stake in 2007, the UK-based company said in its annual report.

Vodafone said its Indian subsidiary had received a letter in January last year from the authorities reminding it of the tax demand of Rs14,200 crore in relation to the dispute over acquisition of Hutchison in 2007.

The report said, ''Vodafone International Holdings BV (the arm through which it acquired Hutchinson's Indian stake) has not received any formal demand for taxation following the Finance Act 2012 but it did receive a letter on January 3, 2013, reminding it of the tax demand raised prior to the Indian Supreme Court's judgment and purporting to update the interest element of that demand in a total amount of Rs142 billion.''

According to the annual report, ''Vodafone India and Vodafone India Services Private Ltd are involved in a number of tax cases with total claims exceeding £1 billion plus interest, and penalties of up to 300 per cent of the principal.''

At current exchange rates, £1 billion is worth Rs9,900 crore.

The claims against Vodafone India Ltd (VIL) range from disputes concerning transfer pricing and the applicability of value-added tax to SIM cards to the disallowance of income tax holidays. The amount of the tax claims against VIL is in the region of £900 million (Rs8,910 crore).

VISPL has been assessed to owe tax of approximately £240 million plus interest of £190 million (about Rs 4,250 crore) in respect of a transfer pricing margin charged for the international call centre of Hutchison prior to the transaction with Vodafone, sale of the international call centre by VISPL to Hutchison and alleged transfer of options held by VISPL for VIL equity shares.

As regards the liability of Rs14,200 crore towards the acquisition of Hutchison Whampoa in 2007, the company faces tax demand following the much-reviled retrospective tax amendment carried out by the previous UPA government in 2012.