British mobile phone giant Vodafone said on Friday that it was urgently looking at ways to head off a potential fresh Indian tax demand for $2.2 billion. It comes after the Indian government said in its recent budget that it would change a law to allow it to retrospectively tax capital gains made by foreign companies.
The step is widely seen as targeting Vodafone, which in January won a Supreme Court fight against a government move to tax the firm over its $10.7-billion takeover of Hong Kong-based Hutchison Whampoa's Indian unit in 2007. Vodafone slammed as "grossly unjust" the government's planned change and said it was "urgently considering a number of courses of action, both in India and internationally".
Its lawyers have said the company could challenge the constitutionality of the retrospective nature of the proposed change. The tax proposal has revived uncertainty about India's regulatory climate at a time when the country urgently needs foreign investment to upgrade its dilapidated infrastructure and spur slowing economic growth.
Tax officials contend Vodafone should have withheld the amount the seller, Hutchison, would have owed in capital gains tax when it bought the Indian mobile unit, which now has nearly 150 million subscribers. However, Vodafone successfully argued that the deal was exempt from paying any tax because it took place abroad and both buyer and seller were foreign. It also noted it was the purchaser and made no gain on the acquisition.
The Indian government's planned legislation, which would be retrospective to 1962, would seek to override the Supreme Court ruling. India has not formally said it plans to issue a fresh tax demand against Vodafone but government officials have told AFP such a move is expected.
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