India authority issues tax claim notice to Vodafone

By Reuters Staff
October 30, 2009

NEW DELHI, Oct 30 (Reuters) – India’s tax department said on Friday it had issued a show-cause notice to Vodafone for default of non-deduction of tax related to its $11.2 billion stake purchase of Hutchison Telecom’s Indian operations in 2007.

Vodafone, in a statement issued in London, confirmed it had received the tax department’s notice and said it remained confident that no tax was payable on the transaction.

Indian authorities and Vodafone have been at loggerheads over the tax issue, which Indian media estimates at about $2 billion.

Vodafone had appealed to the Supreme Court of India after the Bombay High Court last year dismissed its petition against the tax bill. The Supreme Court in January asked tax authorities to decide whether they had jurisdiction to proceed against Vodafone.

India’s Central Board of Direct Taxes, part of the finance ministry, said Vodafone needed to comply with its notice by Nov. 16 “as to why it should not be held that the (tax) department has competent jurisdiction to proceed against it for the default of non-deduction of tax at source from the payment.”

Vodafone said it would continue to defend its position vigorously and intended to respond to the tax department after reviewing the document in detail.

Indian authorities have said Vodafone’s deal was liable for tax because most of the assets are based in India and because under Indian tax law, buyers have to withhold capital gains tax liabilities and pay them to the government.

But Vodafone, the world’s largest mobile phone company by sales, has said Indian law did not require it to deduct tax, and that capital gains tax was usually paid by the seller.

(Reporting by Rajkumar Ray and Devidutta Tripathy in New Delhi and Kate Holton in LONDON ; Editing by John Mair) ((rajkumar.ray@thomsonreuters.com; +91-11-4178-1006; Reuters Messaging: rajkumar.ray.reuters.com@reuters.net))

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