Hutchison informs SEC of likely tax liability  ( July '17,2008, Economic Times)

Hutchison Telecommunications International has admitted in a document submitted to the United States Securities and Exchange Commission (SEC) that there could be a tax liability on it in India on account of its $11-bn sale of telecom company Hutch-Essar to Vodafone.

The document submitted to SEC says that if the company pays the tax, it will have an adverse impact on its financial health. It has also stated that the company did not believe that either it or Vodafone is liable to pay tax in India.

Vodafone faces a tax demand in India, amounting to about $2 bn, in the wake of $11-bn acquisition of Hutch-Essar from Hutchison International. Vodafone has already dragged the income tax department to the Bombay High Court claiming that the Indian tax authorities have no locus standi on a transaction that took place between two parties outside India.

The I-T department took a totally different view, claiming that since the profit had been generated in India, proportionate capital gains tax is payable in India. The tax authorities sent notice to Vodafone, claiming that the company should have withheld taxes before making payment to Hutchison.

While the matter was being hotly debated in the high court, the Indian government brought in an amendment to the relevant provisions in the income-tax laws, to the effect that if the seller of the shares did not pay tax in India, the buyer is bound to pay the same. The Bombay High Court last week completed the hearing of the case. The verdict is going to be out in a couple of months.

The document filed before the SEC says, "We may have financial exposure as a result of warranty or indemnity obligations assumed in connection with the sale of CGP Investments Holdings (an associate company). We may be subject to claims or have to make payments as a result of warranty or indemnity obligations assumed in connection with the sale of interests relating to CGP to Vodafone... Furthermore, Indian tax authorities may consider the gain arising from this sale to be taxable in India. Indian tax authorities have initiated an attempt to investigate certain aspects of such sale, focusing on whether Vodafone should have withheld tax from the acquisitions proceeds. Vodafone has taken court action in India to quash such attempt."

The company further said: "We believe that the sale is not taxable in India and therefore, neither is any Indian tax payable by us nor was Vodafone required to withhold any Indian tax. Accordingly, we have not provided for any claims or Indian tax liabilities in connection with the sale. However, we cannot assure you what the final outcome will be. If we eventually make any such payments or suffer any Indian tax on this sale, it may have a material adverse effect on our financial position."