Bombay High Court Rules In Favour Of Vodafone In Transfer Pricing Case
In a long-running dispute with the Indian taxman, the Bombay high court ruled in favour of vodafone on Friday, a boost for the British telecoms group whose tax battles have been seen as emblematic of the troubles facing foreign investors in India.
The biggest foreign corporate investor in India, Vodafone, has been caught in a string of tax disputes since it entered the country seven years ago, hoping to tap the world’s second-biggest mobile phone market by customers numbers.
Vodafone’s treatment, seen by many investors as heavy-handed, has fuelled debate over India’s unpredictable rules and regulations. On Friday in the case decided, India’s tax office had accused Vodafone India Services Private Ltd- a unit of the group- of under-pricing shares in a rights issue to its parent,and had demanded tax of about Rs 3000 crore($490 million). Vodafone said that the tax demand was for two financial years to March 2011. In a statement welcoming the ruling the company said “Vodafone has maintained consistently throughout the legal proceedings that this transaction was not taxable”.
Girish Vanvari, co-head of tax, KPMG India said the Bombay High Court has made a very welcome pronouncement. The HC has stated that the shares issued at premium does not give rise to income and that absent income, there is no international transaction to trigger transfer pricing provisions. The decision of the HC provides much sought after clarity on this contentious issue and is of great relevance to international investing community.