Vodafone Facing Tax Liability of Over Rs 27,000 Crore in India

Vodafone is facing tax claims and interest totaling more than Rs 27,000 crore in India, including Rs 14,200 crore for the acquisition of Hutchison, the UK-based telecom major said in its annual report.

Vodafone said that its Indian subsidiary had received a letter in January last year from the authorities reminding it of the tax demand of Rs 14,200 crore in relation to the dispute over acquisition of Hutchinson Whampoa in 2007.

"Vodafone International Holdings BV (VIHBV) 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 Rs 142 billion (Rs 14,200 crore)," the report said.

Besides, the UK telecom company is also facing tax liability of over 1 billion pounds. These claims are related to transfer pricing, disallowance of income tax holidays and applicability of value-added tax to SIM cards.

According to the report, "Vodafone India (VIL) and Vodafone India Services Private Limited (VISPL) are involved in a number of tax cases with total claims exceeding 1 billion pound plus interest, and penalties of up to 300 per cent of the principal."

At current exchange rates, one billion pounds is worth Rs 9,900 crore.

The claims against Vodafone India range from disputes concerning transfer pricing and the applicability of value-added tax to SIM cards, to the disallowance of income tax holidays. The quantum of the tax claims against Vodafone India is in the region of 900 million pounds.

VISPL has been assessed to owe tax of approximately 240 million pound plus interest of 190 million pounds (about Rs 4,250 crore in total) 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 Rs 14,200 crore towards acquisition of Hutchison Whampoa in 2007, the company faces tax demand following the retrospective tax amendment carried out by the UPA government in 2012.

The Supreme Court, it may be mentioned, had ruled in favour of Vodafone but the Indian government changed the law with retrospective effect overturning the apex court's ruling.

The UK company in April this year slapped arbitration notice under the bilateral investment treaty for resolution of the tax dispute.

Apart from the tax cases, Vodafone's local outfit is also facing a number of regulatory cases, the report said.

"Litigation remains pending in the Telecommunications Dispute Settlement Appellate Tribunal, High Courts and the Supreme Court in relation to a number of significant regulatory issues including mobile termination rates, spectrum and licence fees, licence extension and 3G intra-circle roaming," Vodafone said.

Vodafone said the Indian government has sought to impose one-time spectrum charges of approximately 525 million pounds on certain operating subsidiaries of VIL.