Vodafone gets through

Investors have been buoyed by a pro-taxpayer ruling by the Supreme Court. But how will it affect the taxability of a company?

Rebecca Abraham reports

Loud applause has followed a 20 January ruling of the Supreme Court, rejecting the idea that India can tax capital gains arising from a share purchase agreement struck offshore, even if assets held in the country change hands.

“Good sense prevails” said a headline in Mint.

“The Supreme Court has done India proud,” wrote Arvind Datar, a senior advocate of Madras High Court, in Business Line. Datar went on to say that the “claim against Vodafone should not have been made in the first place”. Most observers saw the decision as a defeat for India’s tax authorities.

The dispute in Vodafone International Holdings BV v Union of India & Anr dates back to February 2007 when Vodafone International (a Dutch company) acquired CGP Investments (a Cayman Islands company) from Hutchison Telecommunications International (a Cayman Islands company) for US$11.1 billion. As a result Vodafone acquired a 67% controlling stake in what was then Hutchison Essar.