Big Blow for IT dept ? Debate
The verdict in favour of Vodafone over IT department tax claims seems to be a big blow for the treasury. It will set a precedent for multiple deals of Indian assets abroad. The logic that jurisdiction of taxation carried out overseas over Indian asset is baffling. Logically Vodafone is morally responsible for deduction of TDS from the deal even though they have not gained in the short term. It is surprising that Hutchinson which has gained maximum through this deal is let off scot free. I am afraid such moves will generate more and more scope for black money and Indian assests will be sold left right and centre abroad without fear of taxation. It is celebration time for foreign companies, another East India Company legacy ? Debate guys
I am worried more and more Indian assests will get sold outside quoting this precedent and IT department will get no revenues since the deals were struck outside the boundary of Indian sovereignty
Hutchinson was not an Indian company. It was Aussie. True, it held a 74% stake in the Hutchinson Essar JV, but if Vodafone took over Hutch assets in a Mauritius treaty, the IT dept. did not have a right to intervene.
The fight between them was embarassing and a deterrent to FDIs wanted to come into India. The decision has delighted me and reinstated faith about the Indian judiciary in a lot of global citizens.
I feel it is a total let down ? Any bumper gain has to be taxed either in place of gain or where the business is carried out. In this deal the players have not paid tax in either place. A sum of 2500 crores is not a small amount to let go ?
I second the view from Vishal but there is a partial view of yours to which I agree too @Umesh.
I think Vodafone has no obligation to pay Taxes since it did only acquire a stake by the virtue of Inheritance. Vodafone took that route to acquire the stake in Hutchison Essar India because there was rift between Hutchison Whampoa and Essar over the valuations. Both could not meet eye to eye, and Essar was reluctant to accepting Vodafone as a partner. Some 6 months back, there was a rift again between Vodafone and Essar about valuations for the entity Vodafone Essar. Indian Partner had the rights to say no for a chnage in partnership, and Essar was against Vodafone acquiring the business at the deal price since they felt it was still not the valuation the joint entity deserved.
To avoid a legal tussle with Essar over the change of partnership and Essar executing their first right to refusal, Li Ka Shing sold the HongKong entity that held Hutchison Essar stake. The intention here was not really to save tax.
Imagine a situation: When Tatas acquired Jaguar Land Rover, they did so from Ford, a company that is registered in USA. JLR is a UK based company. In that sense, when Tatas bought the stake and paid to Ford USA, can UK government would charge tax on the deal? Does it sound fare?
And now to your point, yes this can become a commonplace once its now clear that people can keep buying companies by buying the parent company which is registered out of India. This may save a good amount of tax, but the deal in itself becomes complicated. In Vodafone's case, they were pushed against wall to do this, and because they badly wanted the Indian market presence.
*Does it sound fair?
**typos
The logic of revenue generation, profit and customer base has to be taken into consideration. Here the brand involved was Orange which had its base in Mumbai even though it had its foreign parent. The main business was undertaken in India, and assets were of Indian origin. In this context tax had to be paid by the gainer that is Hutchinson and it was the moral obligation of Vodafone to deduct TDS and hand over the balance to Hutchinson. I feel Vodafone made a big mistake by buying the stakes at such huge valuation, rather they could have established a world class network by investing half the sum
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