Phew! Fingers crossed, that’s another billion in the bag
Britain’s Vodafone could be let off the hook by India from a £1.4 billion capital gains bill on its acquisition of Hutchison Essar. Vodafone India’s non-executive chairman Analjit Singh has revealed how India’s finance minister Palaniappan Chidambaram is more focussed on dealing with a weak rupee and sluggish home markets, rather than bringing Vodafone to book. He told India’s Economic Times, “The Vodafone question is an important one but it is the next one..not the first one..”
He added that informal talks with the Indian finance minister also was revealed how the latter was keen to reclaim the confidence of international investors such as Vodafone, rather than discourage them with retrospective laws.
Vodafone argues that India’s attempts to retrospectively apply tax law changes is illegal and is seeking international arbitration.
The law concerned, if applied, would cost Vodafone dearly and the company argues it would also be in breach of the India/Netherlands Bilateral Investment Treaty, which guarantees fair treatment of investors.
Vodafone acquired Hutchison Essar five years’ ago and was immediately in dispute with the Indian government on the payment of capital gains tax on the transaction.
While Hutchison Essar operates out of India, neither it nor Vodafone are Indian companies per se and, so it is argued, aren’t subject to local CGT, a situation which was clarified by the Indian Supreme Court in January.
Further adding to the legal wrangle is the fact that while Vodafone is a UK listed company, its international operations stay with a holding company in the Netherlands – so testing legal jurisidication under India/Netherlands treaties stipulating that both parties protect investors in their respective countries reasonably.
Meanwhile, since the dispute started, the potential tax bill has more than doubled thanks to late payment penalties, compounding pressures on both sides.
In the UK last night Vodafone shares closed at 190p, a year high.
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