Vodafone's Rs. 10,141 crores FDI proposal referred to CCEA: Finance Ministry

PTI : January 13, 2014

The Finance Ministry on Monday said the Rs. 10,141 crores proposal of Vodafone to buy out the minority stake in its Indian arm has been referred to the prime minister-headed Cabinet Committee on Economic Affairs (CCEA) for approval.

It also said the government has approved five proposals of foreign direct investment (FDI) amounting to Rs. 1,133.41 crores.

The proposals, which have been approved, include that of UK-based Tesco Overseas Investments and Singtel Global. The proposals have been cleared on the basis of recommendations of Foreign Investment Promotion Board (FIPB).

"The proposal of (CGP India Investments) has been recommended for the consideration of CCEA, as the investment involved in the proposal is above Rs. 1,200 crores," the Ministry said in a statement.

CGP India Investments, an indirect Mauritian subsidiary of Vodafone International Holdings BV, had approached the FIPB to "to increase foreign equity in Vodafone India Ltd from 64.38 percent to 100 percent in telecom sector".

Tesco Overseas Investments has been given permission to acquire (through purchase and subscription) 50 percent of the equity share capital of Tata Group company Trent for multi- brand retail trading in India through a chain of stores.

The Tesco plans to invest Rs. 682.43 crores (USD 110 million).

The Ministry further said that SingTel Global (India) Pvt Ltd has been permission to increase foreign investment from 74 percent to 100 percent in telecom sector company.

Tikona Digital Networks has got FIPB nod to increase foreign equity upto 72.58 percent by issuing compulsorily convertible debentures (CCDs) and equity shares to the existing non-resident investors on a rights basis. The company proposes to bring in FDI worth Rs. 248 crore.

Pharma company Fresenius Kabi India Private was given permission to to issue shares to its parent company. The proposal envisages investment of Rs. 200 crore.

Meanwhile, the Finance Ministry said that government has deferred decision on proposal of HDFC Bank to increase foreign holding in the bank.

HDFC had sought the FIPB permission to maintain the permissible foreign holding in the bank up to 67.55 percent, out of which the FII sub-limit would be 49 percent and the balance 18.55 percent would be FDI.

Decision on two other proposals have also been deferred.

SC rejects govt’s review petition in Vodafone case

 

 FC :SS Negi Mar 20 2012 , New Delhi

In a setback to the government, the Supreme Court on Tuesday dismissed the Centre’s petition for review of in the top court verdict in the Vodafone’s capital gains tax case.

The apex court in a brief order said “no merit” was found in the review petition filed by the government against its January 20 judgement. In the verdict, the top court had quashed the income tax department’s notice to Vodafone for recovery of nearly Rs 12,000 crore as tax on capital gains for investment made it in India's telecom sector.

“We have carefully gone through the review petition filed by the Union of India on February 17. We find no merit in the review petition. The petition is, accordingly dismissed,” a bench of chief justice of India SH Kapadia and justices KS Radhakrishnan and Swatanter Kumar said. The same bench also delivered the verdict. 
As per the Supreme Court’s rules on procedure for hearing the cases, a review petition is also heard by the same bench, which deli-vers the main verdict. A revi-ew petition is only admitted if petitioner has establish an “error” of fact, or law in the verdict sought to be revie-wed, otherwise it would not be entertained. The review petition was decided in a chamber hearing by the bench as is normal practice.

The I-T department had sought tax on capital gains from Vodafone for acquiring the shares of Hutchison in a deal signed in a third country in 2007. Hatchison at that time had invested in Indian telecom sector in a joint venture with Essar.

The apex court in its January 20 verdict had ruled that the Indian Income Tax Act would not apply to any off shore agreement between two foreign companies for acquiring of shares even if the company so acquired was already doing business in India if they were paying tax in the country of their registration.

The main grounds for review laid down by the Centre was that the price of $ 11.08 billion paid by Vodafone in a deal signed in a foreign land was only an “accidental or consequential” transfer of share and be recognised independently of the right and entitlement of Hutchison Telecom India in relation to its business in India, therefore, it was covered under the tax laws of the country.

The government further had said that the apex court should take into consideration different provisions of I-T Act in “extensive” manner with regard to transfer of property as defined in section 2(47) of the Act and it should be read with section 9 to have an “inclusive definition” for the purpose of direct or indirect transfer of such property in India, which would make it liable to be taxed as per the Indian laws.

The apex court in its verdict had said the issue arising out of the Vodafone case had far wider dimension of the flow of the FDI towards "the location with a strong governance infrastructure, which Includes enactment of laws and how well the legal system works.”

The CJI and the two judges in their verdict had ruled, “by applying the ‘look at’ test in order to ascertain the true nature and character of the transaction (between two foreign companies), we hold, that the offshore transaction herein is a bona fide structured FDI investment into India which fell outside India’s territorial tax jurisdiction, hence not taxable.”

SC sets legal benchmark, rules in favour of Vodafone in Rs 11,000-cr tax battle

Source :IE :Krishnadas Rajagopal : New Delhi, Fri Jan 20 2012, 22:37 hrs

Noting that Foreign Direct Investment in-flow depends on good governance, the Supreme Court today declared that the Indian Income Tax department has no jurisdiction to tax the $11.076-billion Vodafone-Hutchison offshore deal.

“FDI flows towards location with a strong governance infrastructure which includes enactment of laws and how well the legal system works. Certainty is integral to rule of law. Certainty and stability form the basic foundation of any fiscal system. Tax policy certainty is crucial for taxpayers (including foreign investors) to make rational economic choices in the most efficient manner,” a majority judgment delivered by Chief Justice of India S H Kapadia said.

With this majority judgment, which the CJI co-authored with his companion judge, Justice Swatanter Kumar, Vodafone wins a case it had partially lost in the Bombay High Court.

The Income Tax Department had quantified Vodafone’s tax liability at a possible Rs. 11,217.95 crore in October 2010, based on a direction from the Supreme Court. The British telco was also staring at the prospect of having to pay a penalty of Rs 7,900 crore, the tax amount due.

Vodafone had acquired Hutchison’s 67 per cent stake in a joint venture with the Essar Group in a May 2007 deal. Indian tax authorities have been interested in the deal since March 23 of that year. Vodafone International Holdings (BV), a Dutch subsidiary of British telecom operator, Vodafone Plc, acquired Hutchison Telecommunications International Limited’s (HTIL’s) Indian business operations through the sale of a Cayman Islands company called CGP Investments (Holdings) Ltd, a subsidiary of HTIL, also a Cayman Islands company.

By virtue of this transaction, Vodafone entered the Indian

mobile telecommunications market. HTIL was listed on the Hong Kong and New York Stock Exchange and was owned by Hong Kong-based Hutchison Whampoa Limited, the Hong Kong-based multi-sectoral conglomerate owned by billionaire Li Ka-shing.

“We hold that the Offshore Transaction herein is a bonafide structured FDI investment into India which fell outside India’s territorial tax jurisdiction, hence not taxable. The said offshore transaction evidences participative investment and not a sham or tax avoidant preordained transaction,” the CJI read out their 95-page judgment.

The court said the deal was way outside the line of control of the Indian IT department: “The offshore transaction was between HTIL (a Cayman Islands company) and VIH (a company incorporated in Netherlands) and the subject matter of the transaction was the transfer of the CGP (a company incorporated in Cayman Islands). Consequently, the Indian Tax Authority had no territorial tax jurisdiction to tax the said Offshore Transaction.”

The court sends a clear message to the government with its observation that certainty of tax policy would send a positive invitation to foreign investors.

“Tax policy certainty is crucial for taxpayers (including foreign investors) to make rational economic choices in the most efficient manner. It is for the government of the day to have them incorporated in the Treaties and in the laws so as to avoid conflicting views,” the court said.

“Investors should know where they stand. It also helps the tax administration in enforcing the provisions of the taxing laws,” the bench added.

Taking for example the Hutchison “structure” — a long term investor which has marked its presence in the country since 1994, the court said certainty in tax policy would also prove beneficial in the long term for the government.

“According to the details submitted, we find that from 2002-03 to 2010-11 the Group (Hutchison) has contributed an amount of Rs 20,242 crore towards direct and indirect taxes on its business operations in India,” the court noted.

The Bombay High Court had on September 8, 2010 qualified that though the IT department did not have control over the Cayman Islands transaction, it did have jurisdiction over taxable assets in India featured in the deal.

Delivering Vodafone a clean sweep over the IT authorities, the court directed department to return Rs 2,500 crore, deposited by the British telco with interest at the rate of 4 per cent per annum within two months from today.

“The interest shall be calculated from the date of withdrawal by the Department from the Registry of the Supreme Court up to the date of payment. The Registry is directed to return the Bank Guarantee given by the appellant within four weeks,” the court ordered.

Referring to lack of clarity in tax avoidance rules, the court held that the onus is on the Revenue authorities to allege and establish abuse when it comes to taxation of a Holding Structure.

“In the application of a judicial anti-avoidance rule, the Revenue may invoke the ‘substance over form’ principle or ‘piercing the corporate veil’ test only after it is able to establish on the basis of the facts and circumstances surrounding the impugned transaction is a sham or tax avoidant,” the court set the guideline.

The court said that every strategic FDI coming to India as an investment destination should be seen in a holistic manner. Revenue authorities should adopt the “look-at principle”, by which the entire transaction is seen as a whole. The department, as found in the Vodafone case, should not “dissect” a transaction to test its legality.

Applying the look-at principle, the court said revenue authorities and courts should keep in mind the concept of participation in investment, the duration of time during which the Holding Structure exists, the period of business operations in India, the generation of taxable revenues in India; the timing of the exit, the continuity of business on such exit.

“In short, the onus will be on the Revenue to identify the scheme and its dominant purpose,” the court said. 

Vodafone, Essar name banks for valuation

Source :MUMBAI: TNN, Feb 2, 2011, 12.46am IST


With fissures developing between UK-based Vodafone and its Indian partner Essar Group in their joint venture -Vodafone-Essar-over the telecom company's valuation, both have appointed separate investment bankers to value the business. While Vodafone has appointed Goldman Sachs to value Essar's 33% stake in the joint venture, the Ruias are said to have brought on board Standard Chartered.

The two partners have been caught in a spat over the valuation of Essar's stake in the JV. The Indian group has proposed to reverse merge Essar Telecom Holdings (ETHL) into its listed group firm, India Securities. ETHL holds 11% of the Essar stake in the joint venture. This is intended to lead to price discovery of its stake in Vodafone Essar, which Vodafone has objected to and has filed an appeal against it in the Madras HC.

Vodafone said it was concerned that such a move could distort the valuation of the JV and that the value of India Securities could be misinterpreted as a fair market value of Vodafone Essar.

Essar, on the other hand, has said categorically that it is going ahead with the reverse merger despite some reports stating that it has shelved its plans. "There is no change in our plans to merge ETHL with India Securities. As we have stated before, the investment banks are free to choose whether or not to consider the listed value of ISL in their fair value determination," an Essar group spokesperson said. Vodafone has a 67% stake in Vodafone Essar, the third largest mobile service provider in India.

The deadline for the put option expires for Essar on May 8, as per an agreement the two companies had struck in 2007. Under the put option, if Essar sells it's 33% stake to Vodafone, it will get a guaranteed $5 billion but if it decides to go for a part sale-the value will be determined by investment banks from both the companies. In case the two companies do not agree to the valuation, a third bank will be mandated to arrive at a fair value.

I-T dept hands Vodafone $2.5bn bill

Source:TNN, Oct 23, 2010, 05.57am IST


NEW DELHI: The I-T department on Friday slapped a tax demand of Rs 11,217.95 crore ($2.5 billion) on Vodafone International Holdings BV, treating it as a defaulter in the $11.07-billion deal to acquire Hutchison Telecommunication's stake in Hutchison Telecommunications India (HTIL).

The tax demand, which has been raised following the direction of Supreme Court on September 27, will have to be met within 30 days. Vodafone had challenged the Bombay High Court ruling that Indian income-tax authorities have jurisdiction to tax Vodafone in relation to the deal with Hutch. The Supreme Court had refused to stay the High Court order and asked the I-T department to raise the actual tax demand. The next hearing of the case is scheduled for October 25.

Vodafone, however, has contested the I-T department's claim. In a statement, the company said: "Vodafone strongly disagrees with the tax calculation released by the Indian tax office. Vodafone continues to believe that it is not liable for any tax on this transaction involving transfer of a company outside of India. Further, Vodafone was the acquirer and not the vendor and has made no gain in the transaction."

Under the provision of I-T department, an acquirer of stake in a company needs to collect the capital gains tax from the seller of the stake. In fact, under section 195 of the I-T Act, the buyer is obliged to deduct the tax liability of the seller from value of the deal. "If the buyer does not deduct the tax liability from the payment to the seller, he/she is liable to pay the tax under section 201(1)," a senior I-T official said. In this case, Hutch sold its stake in HTIL for $11.07 billion or around Rs 52,000 crore in 2007 and made huge profit. Capital gains tax is levied at the rate of 11.33% along with surcharge and education cess on non-listed securities. At 11.33%, a senior tax expert said, the tax liability would have been around Rs 5,600 crore. But, the department , he said, would also have levied penal interest on the amount to reach the figure of Rs 11,217.95 crore.

Vodafone argued that the entire deal was completed outside the country, therefore no tax liability can be fixed in India. In this case, Hutchison had sold its stake in the foreign-based holding company of HTIL to Vodafone's subsidiary companies registered overseas. But the tax department argued that the holding company, in which the stake was sold, had only business in India in the form of operation of HTIL.

Therefore, the entire valuation was based on HTIL's business. The deal also led to the change in ownership of HTIL. Therefore, the department decided to raise the capital gains tax in the transaction.

The I-T department flayed the claim that the decision to levy tax will affect the inflow of foreign fund. "Tax dispute with Vodafone will not impact foreign fund inflow," said S S N Moorthy, chairman of Central Board of Direct Taxes of the Mumbai region. In fact, since the department raised the demand, foreign fund inflow has gone up. In the current year so far, India received over $22 billion (Rs 1 lakh crore) foreign fund.
 

China Mobile, Vodafone to work on 4G after $6.5 bn stake sale

Source:14 SEP, 2010, 04.04PM IST,REUTERS  :IANJIN: 


China Mobile Ltd will still work with Vodafone Group Plc on developing a common 4G mobile telecommunications standard, its chairman said on Monday, even after the British company sold its $6.5 billion stake in the Chinese operator. 

Vodafone's sale of its 3.2 per cent holding in the world's biggest mobile carrier also removed the uncertainty that had surrounded its share price, China Mobile Chairman Wang Jianzhou told reporters on the sidelines of the World Economic Forum. 

"We've worked with Vodafone for ten years, and this will continue," Wang said. "Areas we intend to work together on include developing new markets together, technology, and green development." 

The sale of its China Mobile shares was part of Vodafone's new strategy to exit non-strategic minority investments, which analysts believe have weighed on Vodafone's overall value in recent years.