British telecom giant Vodafone, which is contesting a $2.5-billion (Rs 11,200 crore) tax bill in India over its acquisition of a controlling stake in mobile firm Hutchison Essar, said on Wednesday that it was difficult to understand the rationale behind the authorities seeking to impose penalties on the deal.
“One of our holding companies based in the Netherlands bought the asset,” Andy Halford, Vodafone’s group chief financial officer told HT. “It bought a company that Hutch had got registered in the British Virgin Islands. The legal contracts were in the Cayman Islands. There were all pre-determined by Hutch.”
The tax demand relates to the mobile phone company's 2007 purchase of the Indian telephone assets of Hong Kong conglomerate Hutchison Whampoa for $11.6 billion.
Halford said the transaction was exempt from tax because it took place between two offshore entities.
“We had a very close look at the tax rules in the Cayman Islands and the tax rules in India. We had a very close look at what had previously happened in India. In 50 years, there was not a single exception to that in India and that approach was identical to that all major international countries adopted,” Halford said.
Vodafone has appealed to the Supreme Court challenging a Mumbai High Court order that Indian tax office had jurisdiction over tax bills in cross-border deals. The Supreme Court is scheduled to hear the case on July 19.
“If a tax has to be paid, should it be the seller who has made the money or should it be the buyer. If the rules had been crystal clear at that point, we would have withheld it. Hutch, who has made the profit, as we understand, has never once been contacted by the tax authorities,” Halford said.
British Prime Minister David Cameron, who had visited India last year, had written to Prime Minister Manmohan Singh expressing worries about unpredictable government decisions, which could potentially harm British companies doing business in India.