TAXATION CASE OF VODAFONE Harvard Case Solution & Analysis


Vodafone International Holdings BV was established in Netherlands and it is controlled by Vodafone UK. The company acquired the controlling interests and shares of CGP Investments Holding Ltd that is established in Cayman Islands, for a value of $11.01 billion from Hutchinson Telecommunication International Ltd (HTIL), which is controlled by the Hutchinson Essar Ltd (HEL) which controls the company’s mobile operations in India. In addition to this, CGP is the dummy company that is situated in Cayman which is a tax heaven, i.e. low tax rates are imposed in Cayman.

Hutchinson Essar Ltd has its stake in CGP holding from which Vodafone bought 52% of HEL’s stake in 2007, thereby vesting controlling interests over them. The Bombay Court High Court has passed the decision that when there is a transaction of underlying assets between two or more entities situated in India, it is then subject to capital tax gain under relevant Income Tax Laws (ITL) in India.


There is a conflict between the view of Tax Authority and Vodafone.

Tax Authority’s View:

According to Tax Authority’s contention, Vodafone is liable to pay tax its composite transaction as there is a transfer of rights in the Indian company. Moreover, the transaction resulted in an accrual or deemed accrual of income from source of income in India or from asset in India or through the transfer of capital asset in India.

In addition to this, the Tax authority of India was also of the view that the transfer of shares of the Cayman Islands entity was used only as a mean to transfer the controlling interest to India. Thus, there was a presence of territorial nexus in India for the transaction carried out. Therefore, there is a liability on Vodafone NL to withhold taxes on such transfer according to Tax authority of India.

Vodafone’s View:

According to Vodafone, the primary obligation to discharge the tax was with the payee which is Hutchinson Telecommunication International Ltd (HITL). The company was of the view that unless the payee had defaulted in making payment of taxes on demand by the revenue authorities, the tax could not be recovered from the payer.

In addition to this, the company was also of the view that withholding tax provisions does not apply on an offshore transaction in which the payments by two non-residents is made outside India with respect to capital asset. Therefore, the company is not chargeable to tax in India.................

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