India's Income-Tax Department slapped Rs 11,217.95 crore (US$2.46 billion) tax demand notice on Vodafone for its US$11 billion purchase of Hutchison Essar in 2007.
The tax demand complies with a ruling from the Supreme Court, although Vodafone is still contesting the ruling.
According to the official statement, the tax demand has to be paid within 30 days of the receipt of the notice of demand.
Of the Rs 11,217.96 crore tax demand, actual tax component is about Rs 7,000 crore (US$1.54 billion). The remaining amount is the interest payable for delay in tax payment.
Vodafone said it "strongly disagrees" with the tax calculation.
Vodafone official statement says that it is not liable for any tax on this transaction involving the transfer of a company outside of India. "Further, Vodafone was the acquirer and not the vendor and has made no gain on the transaction. In this "test case", the tax authority is attempting to interpret Indian law as it has never been interpreted for the past 50 years, and this interpretation also goes against internationally recognized tax norms. Vodafone will continue to take whatever actions are necessary to defend itself in this matter.
The Supreme Court is due to resume hearings on Vodafone's appeal on Tomorrow (Monday, 25th October).
Vodafone is one of the biggest mobile operators in India, with 116 million customers, by virtue of a partnership with Essar group.
On the same day that the UK company received the tax demand, its Indian joint venture - "Vodafone Essar" - announced plans to launch 3G services in the new year.
The Indian subsidiary represents a significant investment on Vodafone's part, including a $2.6bn payment for its 3G licence.
The subsidiary plans a further $500m of 3G network investment.
"We need to get more certainty that regulation will not come back and bite us in order to confirm our investment," said Vodafone Group chief executive, Vittorio Colao.
And, he says,
Indian IT department has mentioned that the tax dispute with Vodafone has not impacted foreign fund inflows into the country.
Some people expect that suicide of Vodafone India VP Chandramouli Iyer can be related to this IT department tax case.
It seems Vodafone is having similar issue in UK also. Refer this link for more details.
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