Vodafone wins tax case

Mangalore Today News Network

Mumbai, Oct 10, 2014, DHNS: In a major relief to UK telecom major Vodafone, the Bombay High Court on Friday ruled in its favour, saying the company does not need to pay tax in a contentious transfer pricing case.

In the prolonged case, the Income Tax (I-T) Department had alleged that Vodafone India had underpriced its shares in a rights issue to its parent company. The tax authority had demanded over Rs 3,000 crore ($490 million) as tax on the transaction since the rules require all cross-border transactions between group companies to be valued at arm’s length or as if the transaction was with an unrelated company. The tax demand was for two financial years to March 2011.

Tax authorities had observed that the price at which shares were issued was much lower than the price determined by them as arm’s length price. The difference was taxed in the hands of the subsidiary. Further, this difference was also considered as a “loan” by the Indian subsidiary to its parent with interest being imputed on that and added to the income of the Indian subsidiary.


Transfer pricing is the value at which companies trade products, services or assets between units in different countries. It is a regular part of doing business for a multinational but a practice which, tax authorities often feel, can be exploited.

“Vodafone has maintained throughout the legal proceedings that this transaction was not taxable. We welcome the decision of the Bombay High Court,” Vodafone said in a statement.

The order could spell good news for Vodafone, which has been entangled in a chain of tax disputes, besides many multinational companies facing tax issues in India. IBM, Royal Dutch Shell and Nokia are some of the major corporates facing transfer pricing or other tax issues in the country.

“The decision will set to rest a lot of controversies and go a long way in encouraging foreign investments,” said S P Singh, Senior Director, Deloitte Haskins & Sells.

Vodafone Group has been facing another major tax issue in India worth over Rs 11,000 crore after it bought a 67 per cent stake in Hutchinson Essar in 2007. Vanvari said the high court’s decision would be of great relevance to the international investing community.

However, all is not over for the I-T Department. According to legal experts, the department has the option of filing a special leave petition within 60 days from the date of judgment. Experts opined that the High Court’s ruling could set the benchmark for further rulings related to transfer pricing in India by multinational companies.