CORPORATE TAX PLANNING

VODAFONE TAX CASE SUMMARY

SUBMITTED TO: DR.ALOK CHAAJER

SUBMITTED BY

 TIWARI NIDHI SATISH

 AYUSHEE BHOTHRA
 JERIN MOHAN
 ISHAM BHARGAV
 MUTHU SWAMINATHAN
DATE OF SUBMISSION:26/11/2020
THE VODAFONE CASE: A CRITICAL ANALYSIS
CASE BRIEF: The tax dispute between the Indian Tax authorities and Vodafone in
connection with taxability of the $ 11.2 billion Hutch – Vodafone deal.

COMPANIES INVOLVED

 HTIL (Hutchison Telecommunications International Limited)

 CGP (CGP Investments Holdings Limited)
 HEL (Hutch Essar Limited)
 VIH (Vodafone International Holdings)

ORGIN OF COMPANIES

Vodafone UK based telecom company

Hutchison Cayman island
Telecommunications
International Ltd.
(HTIL)
Hutchison Essar Ltd. India based company
(HEL)
CGP investment Owned by HTIL; Cayman island based company;
holding Ltd. 67% stake in HEL
Income Tax India based
Department

Vodafone acquires Hutch in India with Nil Tax Liability. Because CGP is a
dummy company situated in Cayman Islands, which is a tax heaven. And VIH
want to acquire HEL, so to save tax VIH acquire GCP which is the holding
company of HEL. Now, VIH is neither liable to pay tax in India because they have
made no transaction in India nor in Mauritius because it’s tax heaven.

INDIAN REVENUE AUTHORITIES' OPINION

CGP was created to take benefits of Tax Exemption. The Indian Revenue
Authorities alleged that VIH, had failed to Deduct Tax on the payment of
consideration made to HTIL. Concept of Substance over Form Transaction was to
transfer Rights to in VEL to HEL. Hence, sought to assess tax in its hand as a
taxpayer in default and it issued a notice to Vodafone.

VODAFONE PETITION TO HC AND SC

At 2008, Instead of responding to the Notice of Indian Revenue Authorities, VIH

filed a writ petition to the Honourable Bombay High Court challenging jurisdiction
of Income Tax Department.

The Honourable Bombay High Court upheld the matter in favour of Indian
Revenue Authorities.

At 2009, VIH filed Special Leave Petition (SLP) before the Honourable Supreme
Court of India. The Supreme Court disposed the case with a direction to Tax
Authorities to decide the preliminary issue of jurisdiction.

DECISION BY INDIAN TAX AUTHORITIES AND HC

CGP was a mere holding company and was not engaged into any business in
Cayman Islands, thus, the situs of shares existed where the "underlying assets" i.e.
in India. Further, HTIL had extinguished its right of control over HEL and
extinguishment of "Rights and Entitlements" constituted as "Capital Assets". After
going through the terms of Share Purchase Agreement and other documents, it can
be interpreted that the intention of the parties was ultimately to transfer the
controlling interest in HEL which was situated in India.

The Tax Authorities passed an order under section 201 holding that they had
jurisdiction to proceed against Vodafone for failure to deduct tax.Thursday, 26
November 2020

Vodafone Petition to HC and SC (II) September 2010, Vodafone filed a writ

petition to the Bombay High Court challenging the order of Income Tax
Authorities. The Bombay High Court dismissed Vodafone's writ petition against
the order of the Tax Authorities. Vodafone filed Special Leave Petition (SLP)
before the Honourable Supreme Court of India. The Supreme Court admitted the
SLP and directed Vodafone to deposit Rs. 2,500 crore and provide a bank
guarantee for the balance Rs. 8,500 crore.

THE SUPREME COURT'S DECISION

The Indian Revenue Authorities had no jurisdiction to tax the foreign transactions,
as sale of shares was in Cayman Island.

 Transfer of shares in CGP doesn't amount to transfer of Capital Asset

situated in India, as per Section 9(1).
 The transfer of "Rights and Entitlements” (Controlling Interest) is not
covered in Definition of "Capital Assets" under section 2(14).
 As Capital Asset is not taxable in India, so there is no question of Deducting
Tax at Source under section 195(1).

The Vodafone case is an accomplishment in the Indian duty history which brought
into spotlight the genuine goals of the parliament and the sensible difficulty in the
utilization of CGT under the tax collection laws. The goal of the Parliament can be
best imparted particularly through the substance of the Income Tax Statute itself.
Plainly, the best way to deal with offer effect on Parliamentary Intention in Tax
will be to communicate the approaches and the courses of action unquestionably in
the specific establishment by having an essential structure for the tax assessment
framework. Of course, the arrangements as to CGT should be gotten back to and
given more broad degree to its significance in the ambit of International Taxation.
It would help in expanding the clearness, straightforwardness and authenticity by
giving full effect on Parliamentary Intentions without repealing it.

There is a possibility that India may now take the arbitration order to the Singapore
High Court. There are talks of similar, now-settled cases involving other parties. In
one such instance, the order had been successfully challenged and upheld by the
CourtofAppeals.