In the latest salvo in the six-year long battle between the country’s administration and the FTSE 100 (FTSE: ^FTSE - news) company, Indian tax authorities have formally demanded Vodafone pay the amount in tax and interest charges.
The amount is higher than the $2.2bn previously demanded by the country’s authorities, due to the inclusion of interest dating back to 2007.
It is understood the demand was issued to Vodafone’s Indian subsidiary, Vodafone India, on Thursday, after informal attempts to force the mobile phone company to pay the sum failed.
The demand relates to Vodafone’s $11.1bn acquisition of Hutchison Whampoa’s 67pc stake in what is now known as Vodafone India.
The country’s tax authorities argued that, given the deal involved the sale of an Indian asset, capital gains tax was payable. Vodafone challenged the initial demand, losing the case in a lower court before appealing to the country’s Supreme Court.
In January 2012, the Supreme Court ruled in Vodafone’s favour, saying it did not have to pay the tax as the 2007 transaction took place between two overseas companies. Vodafone structured the deal through its Dutch subsidiary, while Hutchison’s vehicle was registered in the Cayman Islands.
Two months later, in March, the Indian government issued a retrospective tax amendment — dating back to 1962 — in order to catch the Vodafone deal and others like it.
A subsequent government-appointed inquiry into the proposed tax changes — the Shome committee — said in its interim report in October that retrospective application of tax law “should occur [only] in exceptional or rarest of rare cases”.
The final version of the report has since been submitted to India’s finance ministry, which has yet to publish any details of it.
In a statement to The Sunday Telegraph, Vodafone confirmed it has received a demand from the Indian tax authorities relating to the Hutchison Whampoa/Vodafone transaction in 2007. However, it stressed the approach does not include a deadline for payment.
“This reminder relates to capital gains tax arising from the sale of assets by Hutchison Whampoa (HKSE: 0013.HK - news) to Vodafone in 2007,” the statement reads. “Vodafone has replied to this reminder, stating that it continues to believe that no tax is payable on the above transaction.”
A tax source pointed out that as Vodafone was the buyer, it would be impossible for the British telecoms company to have incurred a taxable capital gain.
Vodafone has the option of taking the issue to arbitration, although no such decision has been made.