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India Court Rejects $2.5b Tax Claim Against Vodafone
January 20, 2012

This file photograph shows Indian workers as they put up the signboard of telecom firm "Vodafone" at their corporate office in India This file photograph shows Indian workers as they put up the signboard of telecom firm "Vodafone" at their corporate office in India's financial capital Mumbai. On Friday India's Supreme Court rejected a $2.5 billion tax bill slapped on British phone giant Vodafone by Indian authorities over its purchase of a local operator. (AFP Photo/ Sajjad Hussain)
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New Delhi, India. India’s Supreme Court rejected on Friday a $2.5 billion tax bill slapped on British phone giant Vodafone by India over its purchase of a local operator in a ruling closely watched by foreign investors.

“Indian tax authorities had no jurisdiction to tax Vodafone,” the Supreme Court said in its decision.

Indian authorities slapped a $2.5 billion tax bill on Vodafone and sought an equal sum in penalties over the company’s $11.1 billion purchase in 2007 of a majority stake in Hong Kong-based Hutchison Whampoa’s Indian mobile unit.

The Indian tax officials contended Vodafone should have withheld the amount the vendor was due to pay in capital gains tax when it bought the stake.

However, Vodafone, the world’s largest mobile operator by subscribers, maintained that Indian law did not require it to deduct tax on the deal because it took place in the Cayman Islands and both buyer and seller were foreign.

Vodafone also noted it was the purchaser and not the seller and made no gain on the deal.

In the ruling, Supreme Court Justice Radhakrishnan Nair compared the Indian tax demand to “capital punishment on capital investment.”

The lawyer for Vodafone, Harish Salve, expressed delight over the company’s victory.

“I am happy that after a long and hard battle we have won the case,” he said. “This judgement could boost foreign investment.”

The dispute was being closely tracked by international investors with experts saying the case could have implications for big-ticket purchases of Indian firms by foreign companies.

Foreign investment in India has slowed amid investor concern over widespread corruption, bureaucratic delays, lack of progress on economic reforms and an uncertain regulatory climate.

Agence France-Presse