2nd UPDATE:India Asks Vodafone To Explain Essar Tax Decision
30 Ottobre 2009 - 5:11PM
Dow Jones News
India's income-tax authorities Friday asked Vodafone Group PLC's
(VOD.LN) local unit to explain the reason for not deducting and
paying tax on the $11.2 billion it paid to buy a majority stake in
a mobile-phone operator in the country.
Vodafone, the world's biggest mobile operator by revenue, has
until Nov. 16 to respond to the show cause notice, the Central
Board of Direct Taxes said in an emailed statement.
India has slapped a tax bill on Vodafone International Holdings
BV, reported by Indian media to be around $2 billion, related to
its 2007 acquisition of a 67% stake in Hutchison Essar Ltd. from
CPG Ltd., owned by Hutchison Telecommunications International Ltd.
(2332.HK).
But Netherlands-registered Vodafone International has argued
that the deal with Cayman Islands-registered CPG isn't liable to be
taxed in India as it took place on foreign soil.
India's tax department says Vodafone is liable to pay taxes
because the transaction involved the transfer of an Indian asset.
It also said Vodafone should have withheld tax on behalf of the
government.
Vodafone, which hasn't set aside a provision for the tax bill,
reiterated Friday that the company isn't liable to pay tax on the
transaction and that "all of the taxation and legal advice received
remains consistent with this view."
Vodafone said it will review the document in detail and respond
in due course.
"Vodafone will continue to defend its position vigorously," the
company said in a statement, and will continue to cooperate fully
with the tax department.
The Supreme Court of India in January declined to hear
Vodafone's plea in the case and told the Central Board of Direct
Taxes to look into it further, which resulted in Friday's
show-cause notice.
A tax board spokesman said Vodafone International will have to
reply to the notice and the board will then take a "final
view."
Sanford Bernstein analyst Robin Bienenstock said there's a 50%
chance that Vodafone will have to pay up some money, which he
estimates will be around $1 billion. He has an outperform rating on
Vodafone and 180 pence target price.
At 1532 GMT, Vodafone shares were down 2 pence, or 1.6%, at 137
pence, valuing the company at GBP71.93 billion, in a lower London
market.
Vodafone competes in India with operators such as Bharti Airtel
Ltd. (532454.BY), Reliance Communications Ltd. (532712.BY), Idea
Cellular (532822.BY) and foreign telecom companies such as Telenor
ASA (TEL.OS), Emirates Telecommunications Corp. (ETISALAT.AD) and
Japan's NTT DoCoMo Inc. (9437.TO), which have entered the Indian
telecom sector in the recent past to take advantage of its fast
growth.
-By R. Jai Krishna and Romit Guha Dow Jones Newswires;
+91-11-4356-3333; krishna.jai@dowjones.com
(Lilly Vitorovich in London contributed to this article)
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