Vodafone findings and way forward in similar cases

The Supreme Court of India recently delivered a path-breaking judgment in the case of Vodafone International Holdings BV v UOI, holding that indirect transfer of shares of an Indian entity between two non-residents is not taxable in India. The decision has brought relief to all those who are invested or looking to invest in India, or who have exited India with open tax issues.

Brief facts

Hutchison Telecommunications International, Hong Kong (Hutchison HK), held 67% of the shares of Hutchison Essar, India, indirectly through CGP Investments Holdings, Cayman Islands. Hutchison HK’s stake in CGP was acquired by Vodafone, UK, through Vodafone International Holdings BV (Vodafone), a Netherlands-based special purpose vehicle (SPV). As a result of this sale, capital gains, estimated at US$11 billion, accrued to CGP.

The Indian tax authorities (ITA), being of the view that the transaction would give rise to capital gains chargeable to tax in India, held that Vodafone was under an obligation to withhold tax at source when paying for the purchase. Vodafone maintained that the transaction was between two non-residents outside India and not chargeable to tax in India.

Pranay Bhatia is an associate partner and Abhay Pitale is a senior associate at Economic Laws Practice. ELP is a full-service law firm with offices in Mumbai, New Delhi, Pune and Ahmedabad.