On 7 September 2010, High Court of Mumbai ordered Vodafone International Holdings BV (Vodafone) to pay approximately USD $2.1 billion in tax in relation to its acquisition of shares from Hutchinson Telecommunications International Limited (Hutch) in the foreign holding company of an Indian entity (Essar) in May 2007. This is the first case which has been litigated before the High Court where the Indian Tax Authorities have successfully sought to tax capital gains arising on a share transfer from a foreign holding company to another foreign company on the basis that such a transfer results in an indirect change in controlling interest of a subsidiary Indian company.
Vodafone has appealed this decision before the Supreme Court and whilst there remains the possibility of changes, it is important for foreign companies to heed the key issues summarised in this note. In particular, this note serves as an overview of the pitfalls for foreign companies that have thus far been highlighted as a result of this case.
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