British telecom major Vodafone on Friday said it had made an adjustment to the tune of Rs 3,400 crore in its fair market value to account for the payment it has made for 3G licences. This will be the additional amount payable to Essar, the 33 per cent shareholder in the company's Indian operations, if Essar opts for an independent valuation of its stake while exercising its put option.
The Bombay High Court on Thursday deferred till August 2 the hearing on an appeal filed by Vodafone International challenging income tax department's decision to levy tax on the company for acquiring stake of Hutchison International in Hutchison-Essar in a $11.1 billion deal in February 2007.
Vodafone is facing tax liability over its $11 billion acquisition of a 67 per cent stake in the mobile-phone business owned by Hutchison Whampoa in 2007.
The retrospective tax controversy was highlighted by Vodafone, but Cairn Plc's continuing problems point to the impact this law has had on FDI in India's oil and gas sector.
Cut-throat competition, high spectrum costs, and frequent flip-flops in government policies have made it difficult for Vodafone to make money in the country.
Faced with prospect of its assets across the globe being seized just like Pakistan and Venezuela, the government decided to scrap retrospective taxation but the international embarrassment could have been avoided had 'attached' shares of Britain's Cairn Energy Plc not been sold, according to tax and legal experts. On Thursday, the government introduced a Bill in Parliament to scrap the tax rule that gave the tax department power to go 50 years back and slap capital gains levies wherever ownership had changed hands overseas but business assets were in India. The 2012 legislation was used to levy a cumulative of Rs 1.10 lakh crore of tax on 17 entities, including UK telecom giant Vodafone, but substantial punitive action was taken only in the case of Cairn.
Delhi High Court issued notices on Monday to the Centre, Hutchison Telecom India Ltd, Hutch-Essar and its minority shareholders among others on a petition alleging breach of foreign direct investment norms in telecom sector.
Vodafone appointed to its board on Thursday a former group managing director at HTIL's parent company Hutchison Whampoa.
Vodafone recently bought the 67 per cent stake held by Hutchison. The remaining equity is held by the Ruias.
Sources said I-T deparment has sent a notice to Vodafone for not paying capital gains tax, arguing that the company should have deducted tax at source while making payment to Hong Kong-based Hutchison Telecom International Ltd.
The Foreign Investment Promotion Board has expressed dissatisfaction with the replies given by Hutchison Essar, its Hong Kong-based parent Hutchison Telecom International
Law ministry tells finance ministry to inquire into the acquisition of Hutchison-Essar further.
Undeterred by the controversy surrounding its acquisition of Hutch-Essar, Vodafone asserted on Monday it was fully compliant with the foreign direct investment regulations as it had 'only stepped into the shoes of Hutchison Telecom.'
The FIPB referred the matter to the law ministry today.
The clarification comes a day after Vodafone signed a shareholders' agreement with the Essar group.
British giant Vodafone and Indian conglomerate Essar group reached an agreement on Thursday for jointly running India's fourth largest mobile firm -- Hutch-Essar, which would be rechristened Vodafone Essar.
Jio is targeting to differentiate its services via superior data and an associated ecosystem of content.
The high-profile bidding war for control of Hutch-Essar could intensify with reports in the British media suggesting that Indian partner Ruias have received funding pledges worth up to $25 billion to buy out foreign stakeholder Hutchison Telecom.
The Ruias have received overwhelming response from international banks for funding of their proposed bid to pick up Hutchison's 67 per cent equity stake in Hutchison-Essar Ltd, in which they hold the remaining stake.
Seeks capital gains tax payment prior to FIPB clearance.
Buoyant stock markets and booming telecom sector appear to have generated some interest among global equity players with Blackstone and Texas Pacific approaching Hutchison to buy stake in its India venture but the move could face hurdles.
The income tax (I-T) department in Mumbai has requested Vodafone to make an application to the assessing officer for determining the exact tax liability resulting from buying out 62 per cent equity stake from Hutchison in Hutchison Essar Ltd.
Ahead of the key vote by Hutchison Telecom shareholders on sale of Indian assets to Vodafone, the Hong Kong-based firm and its minority partners in Hutch-Essar have asserted that their investments met foreign direct investment norms
UK's Vodafone is learnt to have approached the Foreign Investment Promotion Board for approval to acquire 52 per cent stake of Hong Kong-based Hutchison Telecom in mobile firm Hutch-Essar and also for investing in telecom activities.
Having lost the battle for Hutchison Essar, Anil Ambani-controlled Reliance Communications is drawing up plans to invest up to $2.5 billion.
The Ruias, Anil Dhirubhai Ambani group, Hindujas and Vodafone are all believed to have put in their bids.
Hutchison Telecom International Ltd is believed to have called a meeting of shareholders on February 15 to seek their approval for the proposed sale of its 67 per cent stake in India's Hutch-Essar.
A consortium of bankers that will fund the Ruias' bid for Hutchison's 67 per cent equity stake in Hutchison Essar Ltd will begin "due diligence" on the company in the next few days
As top bosses of Vodafone and Essar arrived in Hong Kong to negotiate a deal for acquiring Hutchison Telecom's Indian business, its parent company has indicated it will not consider any offer below $14 billion.
The letter was written on February 20, two weeks after the Cabinet Committee of Economic Affairs had approved the 100 per cent ownership proposal of Vodafone Plc in Vodafone India, at a proposed investment of Rs 10,141 crore (Rs 101.41 billion).
Agency reports said Hutchison Whampoa had received bid interest in its Indian mobile business, but that the prices indicated so far were too low.
According to reports, the deal, if successful, could fetch Hutchison as much as $14 billion and would be Asia's largest private equity deal.
Hutchison holds a 52 percent stake in Hutchison Essar and the Ruias-promoted Essar group 33 percent, while the rest is held by Analjit Singh of Max India and Hutchison Essar CEO Asim Ghosh.
Sarin said Hutchison obviously had its own compulsions of not being able to continue in India.
The Foreign Investment Promotion Board will take up on March 20, the proposal of UK mobile giant Vodafone to acquire 52 per cent direct stake in Hutchison-Essar from Hong Kong-based Hutchison Telecom based on an enterprise value of $18.8 billion.
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