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The Authority for Advance Rulings (AAR) will on May 9 take up Vodafone's application to ascertain the taxability of its stake purchase transaction in Vodafone Essar.
The UK-based telecommunications giant wants to seek the AAR's opinion on whether it is liable to deduct tax on payment made to Essar as part of its endeavour to buy additional 33 per cent stake in the Indian joint venture company from partner Essar Group.
The AAR is expected to give its views on the same within 15 days of completion of hearing, it is learnt.
$5-billion deal
The $5-billion deal between Vodafone and Essar was structured in two parts. Vodafone bought 22 per cent stake from a Mauritius-based Essar entity while the remaining 11 per cent stake that changed hands was owned by a domestic Essar entity.
Vodafone's stance has been that it is not liable to pay withholding taxes on either part of the transaction.
“Onshore shares are subject to domestic capital gains tax, which is payable by the seller. The offshore shares should not be taxable due to the Indo-Mauritian tax treaty. We do not believe withholding tax is due as we believe this transaction falls under the Indo-Mauritian tax treaty,” Vodafone International spokesperson Mr Simon Gordon told Business Line .
Under the India-Mauritius treaty, there is no capital gains tax on investments routed through Mauritius, either in India or Mauritius. A recent AAR ruling, in response to a plea by DB Zwirn Mauritius to ascertain its taxability on transfer of equity shares of Quippo Telecom Infrastructure, has further boosted Vodafone's chances.
Interestingly, Vodafone has been locked in a long legal battle with the Indian taxation authorities over the issue of non-payment of capital gains taxes following its 2007 deal to acquire a controlling stake in the then Hutchison-Essar.
The IT Department had alleged that Vodafone will have to fork out $2.5 billion as it had not deducted tax at source when it made payments to Hutchison Whampoa as part of the $11-billion deal.
Another petition
While the matter is still awaiting a hearing from the Supreme Court, Vodafone yesterday filed another petition in the apex court seeking to block the Income-Tax authorities from initiating penalty proceedings against it.
This plea, which was supposed to be heard by the Supreme Court on April 7, has now been pushed to next week.
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