Vodafone tax evasion case study

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Vodafone tax evasion case study

This case is something like that. A brief about company connected to this case — Vodafone Group Plc incorporated in England is the world's leading mobile telecommunications company. It has a significant presence in Europe, the Middle East, Africa, Asia Pacific and the United States through the Company's subsidiary undertakings, joint ventures, associated undertakings and investments.

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Vodafone Group has entered into arrangements with network operators in countries where the Group does not hold an equity stake.

Under the terms of these Partner Market Agreements, Vodafone and its partner operators co-operate in the marketing of global products and services with varying levels of brand association. This strategy enables Vodafone to implement services in new territories and to create additional value to their partners' customers and to Vodafone's travelling customers without the need for equity investment in these countries.

HWL is an international corporation formed in with a diverse array of holdings which includes the world's biggest port and telecommunication operations in 54 countries. Hutchison deals in the businesses of ports and related services, property and hotels, retail, energy, infrastructure, investments and telecommunications.

It belongs to the Cheung Kong Group. Essar began as a construction company in and diversified into manufacturing, services and retail. Essar is managed by Shri. Essar has its foot print over Asia, Africa, Europe and the America. Hutch India was in the business of providing telecommunications service in India.

The ultimate effect however was the transfer of controlling shares of an Indian company. Since the deal was offshore, neither party thought it was taxable in India. But the tax department disagreed. It claimed that capital gains tax, most people paid on the transaction and that tax should have been deducted by Vodafone whilst paying Hutch.

The matter went to court. Withholding tax is a Government requirement for the payer of an item of income to withhold or deduct tax from the payment, and pay that tax to the government.

In most jurisdictions withholding tax applies to employment income. Many jurisdictions also require withholding tax on payments of interest or dividends.

Vodafone tax evasion case study

In most jurisdictions there are additional withholding tax obligations if the recipient of the income is resident in a different jurisdiction, and in those circumstances withholding tax sometimes applies to royalties, rent or even the sale of real estate.

Governments use withholding tax as a means to combat tax evasion, and sometimes impose additional withholding tax requirements if the recipient has been delinquent in filing tax returns, or in industries where tax evasion is perceived to be common.

Typically the withholding tax is treated as a payment on account of the recipient's final tax liability. It may be refunded if it is determined, when a tax return is filed, that the recipient's tax liability to the government which received the withholding tax is less than the tax withheld, or additional tax may be due if it is determined that the recipient's tax liability is more than the withholding tax.

In some cases the withholding tax is treated as discharging the recipient's tax liability, and no tax return or additional tax is required.

The tax department contended that the transaction of transfer of shares in CGP had the effect of indirect transfer of assets situated in India.

By its order dated 3 Decemberthe Bombay High Court held that the tax authorities had made out a prima facie case that the transaction was one of transfer of a capital asset situate in India, and accordingly, the Indian income-tax authorities had jurisdiction over the matter.

In its ruling, dated 23 Januarythe Supreme Court directed the tax authorities to first determine the jurisdictional challenge raised by Vodafone.

It also permitted Vodafone to challenge the decision of the tax authorities on the preliminary issue of jurisdiction before the High Court. This order of the tax authorities was challenged by Vodafone before the Bombay High Court. Moreover withholding tax provisions cannot have extra-territorial application and is applied to companies of Indian residence only.

Arguments of Tax Authority: Tax department seeks to show that since most of the assets were in India, the deal was liable to Indian capital gains tax. Hutch had sold Vodafone valuable rights - including tag along rights, management rights and the right to do business in India and that the offshore transaction had resulted in Vodafone having operational control over the Indian asset, which is the second largest telecom service provider in India.

It also argues that under Indian law, the buyer in a deal is required to withhold any capital gains tax liability and to pay it to the treasury. Treatment of Capital Gains on extra territorial transaction: The Indian Parliament, under the provisions of the Constitution, has the competence to enact a legislation having an extraterritorial application.


But it is unsure whether the Income Tax Act has such powers. According to Section 9 of the Income Tax Act, where a non-resident earns any income by a transfer of capital asset in India whether direct or indirectthe capital gains tax would apply.

But Section 9 does not state that the transfer of the capital asset can be direct or indirect.Vodafone was embroiled in a $ billion tax dispute over its purchase of Hutchison Essar Telecom services in April The transaction involved purchase of assets of an Indian Company, and therefore the transaction, or part thereof was liable to be taxed in India as per the allegations of tax department.

Tax laws in India: A complete guide to tax laws in India, issues such as Advance Ruling Under Vat Acts, income tax forms,income on salary, free download of tax forms, foreign tax, double taxation. Mar 01,  · The demand for tax in the Vodafone case was a result of failing to understand the difference between the sale of shares in a company and the sale of Author: Arvind P.

Datar. Governments use withholding tax as a means to combat tax evasion, and sometimes impose additional withholding tax requirements if the recipient has been delinquent in filing tax returns, or in industries where tax evasion is perceived to be common.

Updates in Case: The tax office had asked Vodafone to pay $ billion (Approx Rs. Crore). On 15th Nov – India’s top court (Supreme court) directed Vodafone (VOD.L) to deposit $ million within three weeks in relation to a $ billion tax dispute.

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