India's about-face on taxation could cost Vodafone billions

The Indian government has said it will seize Vodafone's assets in the country if the company refuses to pay a $2.1bn tax bill, claiming the fee is for Vodafone's 2007 purchase of a stake in another telecom; Vodafone, however, claims the purchase was made abroad and therefore is not taxable in India. This is seen as an about turn for President Modi who was elected on a pro-business platform, seeming to recognise that the lack of clarity on taxes was spooking investors and companies who were otherwise keen to do business in the Indian market. This latest move is likely to affect investors' perceptions of the country moving forward, say reports.

When Narendra Modi campaigned to become India’s prime minister on a pro-business platform, he promised to fix the nation’s immature tax policy. He seemed to recognize that a lack of clarity on taxes was spooking investors and companies otherwise keen to do business in the Indian market.

At some point after becoming prime minister in May 2014, Modi appears to have either forgotten about this stance or changed his mind, as a number of companies have discovered. Now, in a key case, Modi’s government is threatening to seize Vodafone’s assets in the country if the British telecom giant doesn’t pay a long-disputed tax bill of $2.1 billion. That’s according to a Feb. 4 notice sent to the company this month, reports Bloomberg.

Advertisement

“We can confirm that we have received a tax reminder from the Tax Department that also references asset seizures in the event of non-payment,” Vodafone spokesman Ben Padovan told Quartz in an email.

Vodafone has fought long and hard against the tax bill, which came as a surprise and traces back (paywall) to well before Modi became prime minister. The matter relates to the company’s 2007 acquisition of Hutch Essar, the Indian arm of Hong Kong-based Hutchison Telecommunications International.

The company has argued—both to the nation’s supreme court and in international arbitration proceedings begun in 2014—that it owes nothing to the Indian government because the transaction took place offshore. But the government has countered it can collect taxes on the deal because it involved assets in India.

“This dispute is currently the subject of international arbitration,” said Padovan. “The Indian government stated in 2014 that existing tax disputes, including ours, would be resolved through existing judicial process.”

Advertisement

The matter will likely affect investors’ perceptions of India moving forward.

This post has been updated with comments from Vodafone.