India court upholds big tax bill against Vodafone

An Indian court has upheld a tax department demand for Vodafone Group Plc to pay 120 billion rupees ($2.6 billion) in taxes for its 2007 acquisition of one of India's largest mobile phone companies.

An Indian court has upheld a tax department demand for Vodafone Group Plc to pay 120 billion rupees ($2.6 billion) in taxes for its 2007 acquisition of one of India's largest mobile phone companies.

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A Vodafone executive said on Wednesday the company will "think seriously" about appealing the ruling to India's Supreme Court. Vodafone wanted the court to overturn the tax department's ruling that it was liable for tax on its $11.1 billion acquisition three years ago of a 67 percent stake in the India telecom assets of Hong Kong's Hutchison Telecommunications International Ltd.

The court's decision hinged on whether Indian tax authorities have jurisdiction over a deal between two foreign entities. In May 2007, Vodafone International Holdings BV a Dutch subsidiary of the British telecom giant acquired a 67 percent stake in CGP Investments Ltd., a Cayman Islands company, which held the India telecom assets of Hong Kong's Hutchison Telecommunications International Ltd.

The court said Indian tax authorities do have jurisdiction over the deal because it involved the transfer of Indian assets, which accrue revenue in India.

India's tax authorities have a fearsome reputation among foreign investors, and the verdict is being closely watched by companies like SABMiller, General Electric and AT&T, who have also been swept up in the tax department's increasing activism over the last three years.

Vodafone will not have to pay the tax bill for at least eight weeks during which time it will consider an appeal. The tax amount due is also up for negotiation.