1. Facts and Background
•Vodafone International Holdings BV, based in Netherlands and controlled by
Vodafone UK, obtained the controlling interest and share of CGP Investments
Holdings Ltd(CGP) located in Cayman Island for a value of $11.01 billion from
Hutchinson Telecommunications International Ltd(HTIL), which had stake in
Hutchinson Essar Ltd(HEL) that handled the company's mobile operations in India
•HELhaditsstakeinCGPHoldings,fromwhichVodafonebought52percentofHEL'sstakein20
07,therebyvestingcontrollinginterestoverthem
•TheBombayHighCourt,onSeptember8,ruledthatwhentheunderlyingassetsofthetransa
ctionbetweentwoormoreoffshoreentitiesliesinIndia,itissubjecttocapitalgainstaxund
errelevantIncomeTaxlaws(ITL)in India
•TheCourtinvokedthenexusrulewhereinastatecantaxbyconnectingapersonsoughttobet
axedwiththejurisdiction, which seeks to tax (The treatment of the company as an
Assesse in Default(AID) under Section 201(1) of the Income Tax Act)
•ThecourtcametotheconclusionthatVodafoneisliabletopaytaxesatsource(TDS)
•VodafonehasnowappealedbeforetheSupremeCourttorevisitthejudgement,whichmake
sthemliableforarecordamountofRs12,000croresgoingtothe tax authorities’ kitty
2.
3. NEED FOR LEGISLATION AND CERTAINTY
• Tax avoidance is a problem faced by almost all countries following civil and
common law systems and all share the common broad aim to combat it
• Vodafone case an eye-opener of what India lacks in regulatory laws and what
measures India has to take to meet the various unprecedented situations without
sacrificing national interest
• The DTC envisages to create an economically efficient and effective direct tax
system by proposing a GAAR
• Certainty is integral to rule of law - the basic foundation of any fiscal system
• Tax policy certainty is crucial for taxpayers (including foreign investors) to make
rational economic choices in the most efficient manner
