Professional Documents
Culture Documents
Vodafone Hutch M A PDF
Vodafone Hutch M A PDF
B V S Kapil
59
M Manivel
69
G Nishanth
79
Swapnil Potdukhe 89
Mozzam Rangwala 99
XIME
ns
Table of Contents
Company Profile: Hutchison Essar ..............................................................................................3
Company Profile: Vodafone..........................................................................................................3
Highlights of Acquisition ...............................................................................................................3
Reasons behind Hutchisons Exit .................................................................................................4
Reasons for Vodafones Entry ......................................................................................................4
Valuation of Hutchison Essar by Vodafone ...............................................................................5
Timeline of Acquisition..................................................................................................................6
Capital Gains Tax ..........................................................................................................................7
Sections of Income Tax Act, 1961 .................................................................................................7
Controversy ....................................................................................................................................8
Implications of not paying the Capital Gains Tax ......................................................................8
Arguments by Vodafone and Revenue Department ...................................................................9
Bombay High Courts verdict ....................................................................................................10
Conclusion ....................................................................................................................................11
References .....................................................................................................................................12
2|Page
30 countries and has partner networks in over 40 additional countries. Group had 289 million
customers till Dec, 2008. The Company's ordinary shares are listed on the London Stock
Exchange and NYSE. The Company had a total market capitalization of approximately 74
billion at 31 December 2008.
Highlights of Acquisition
Acquisition of 67% share by Vodafone in Hutch-Essar previously held by Hutchison Telecom.
Vodafone gets full operational control.
Transaction consideration: US$11.1bn (5.7bn).
Implied enterprise value: US$18.8bn (9.6bn).
Partnership agreement with Essar.
3|Page
4|Page
5|Page
Timeline of Acquisition
December first week: Reliance Communications plans bid for Hutch-Essar.
December third week: Vodafone joins the race, ropes in UBS as advisor.
January first week: Hutch, Ruias differ on right of first refusal; Hindujas say they too will
bid; RCom gets $2 billion commitments from private equity firms.
January second week: Vodafone starts due diligence on Hutch-Essar, followed by the
Ruias; Hindujas place a non-binding bid.
February 9: Final day for submitting bids. Essar group, Reliance Communications, Hindujas
and Vodafone place their final bids.
February 10: Hindujas confirm to have partnered with Qatar Telecom and Russia's Altimo to
form a consortium.
February 11: Vodafone wins the race with a $19.3 billion bid.
Agreement: 11-Feb-2007
Transaction sealed on 08-May-2007
Operations start on 20-Sep-2007. Brand name changed from Hutch to Vodafone on the
same day.
The acquisition took place under Section 47(vii) of Income -Tax Act 1961.
Vodafone pays the entire deal amount in cash.
6|Page
Section 5(2)
The taxable income of a non-resident includes income "received or deemed to be received in
India" and income that "accrues or arises or deemed to accrue or arise in India". It does not
include income that accrues or arises or is deemed to accrue or arise outside India.
Section 195
Buyer will be responsible for paying the tax after purchasing any capital asset- a share or
debenture of a company in India.
The buyer will have to deduct TDS and failure to do so would leave him liable to pay the tax.
7|Page
Controversy
The whole controversy in the case of Vodafone is about the taxability of transfer of share capital
of the Indian entity. Generally, the transfer of shares of a non-resident
company to another
non-resident is not subject to tax in India. As a result Vodafone neither deducted the tax at source
nor did it pay after the acquisition.
8|Page
The transfer of shares of a non-resident company to another non-resident is not subject to tax in
India. Also, there was no sale of shares of the Indian company and what it had acquired is a
company incorporated in Cayman Islands which, in turn, holds the Indian entity. Hence, the
transaction is not subject to tax in India.
Revenue Department
Transfer of beneficial interest of the shares of an Indian company and, hence, it will be subject to
tax. It argues that company should have deducted the tax at source while making the payment to
HTIL
In addition, Vodafone had failed to produce its agreement with Hutchinson which alone could
have revealed the true nature of the transaction.
Also, the valuation for the transfer includes the valuation of the Indian entity also and as
Vodafone has also approached the Foreign Investment Promotion Board (FIPB) for its approval
for the deal, Vodafone had a business connection in India.
9|Page
10 | P a g e
Conclusion
From the detailed analysis of the Bombay High Court order it is apparent that the
transaction between HTIL and Vodafone did give rise to income chargeable to tax in
India under the provisions of sections 5(2) and 9 of the Income tax Act, 1961.
This is a case where the existence of separate corporate entities had not been recognized
by the Vendor, HTIL itself and through the corporate veil, the conclusion with regard to
the real nature of the transaction is inescapable.
Having concluded that the income is chargeable to tax in India, Vodafone was under an
obligation to deduct tax at source at the time of making payment of sale consideration to
HTIL in terms of section 195 of the Act. The facts clearly proved that on the date of
payment i.e. on 8th May, 2007 Vodafone had sufficient nexus and presence in India and
it cannot claim that it was not bound by Indian laws including tax laws and the
withholding tax provisions contained in section 195 of the Act. The provisions of section
195 were clearly attracted and the plea of payment being from one non-resident to
another is not sustainable.
11 | P a g e
References
Wikipedia: Vodafone-Essar
CA Club India
Taxguru
--------------------------------------------------------------------------------------
12 | P a g e