Vodafone won a favourable ruling from the Bombay High Court in an INR30 billion ($490 million) tax dispute with the Indian government over transfer pricing.
The operator had appealed the country’s tax office decision to demand the tax after it accused Vodafone India Services of undervaluing its shares in a rights issue to its parent. The company has insisted all along that the transaction was not taxable.
Reuters reported that Vodafone is among several foreign companies, including Nokia and IBM, involved in transfer pricing cases with the county’s tax authorities. Transfer pricing is the value at which a company trades an asset between units in different countries.
The ruling is a positive sign for foreign investors who have long complained about India’s regulations and tax laws, which seem to change with each shift in government.
The count decision issued on Friday, however, doesn’t end Vodafone’s tax woes in the country, where it is also fighting a $2 billion tax bill from its acquisition of Hutchison Whampoa’s India mobile unit Hutch-Essar.
Vodafone, which entered the market in 2007 when it acquired a 67 per cent stake in Hutch-Essar for $11 billion, has been embroiled in a number of legal battles with the government over taxes during much of that time.
Vodafone brought out its local partner’s 33 per cent interest in 2011 for $5.5 billion.
The government claims the transaction involved the assets of an India-based firm and therefore has to pay Indian tax. The country’s Supreme Count ruled in Vodafone’s favour two years ago, noting the tax authorities had “no jurisdiction” to levy tax on overseas transaction between companies incorporated outside India. But the government then moved to change its income tax act.
In August Vodafone and the Indian government were still working out the choice of a third arbitrator in their tax dispute, although relations have warmed between the two sides since the election of a new government under Prime Minister Narendra Modi.