Vodafone tax debacle under scrutiny again

Vodafone’s tax habits have come under more scrutiny, this time by Dutch authorities.

The Dutch have now filed a formal application to the Indian finance ministry under the mutual agreement procedure (MAP) in relation to the move by Indian authorities to have Vodafone International Holdings – part of Vodafone Group- pay tax on its 2007 acquisition of a majority stake in Hutchison Essar Ltd.

It says the tax issues are inconsistent with the provisions of the India-Dutch tax treaty, according to a government source familiar with the development.

The Dutch authorities  informally asked the government about invoking MAP in this case a few weeks ago. MAP entitles the competent authority of a country to take up tax disputes on behalf of its taxpayer, with the revenue authorities of the country where the tax payer is facing tax litigation.

In the case of $11 billion Hutch-Vodafone deal, the payment was made by a Netherlands arm of the United Kingdom headquartered Vodafone group.

The income tax department is seeking to recover the capital gains taxes from Vodafone for failing to deduct tax before making payment of $11 billion to Hutchison for acquiring a 67 percent stake in Indian telecom company Hutchison Essar (now renamed Vodafone Essar).

Indian courts have twice rejected Vodafone’s writ petition to dismiss the tax case. The Bombay High Court ruled a couple of months ago that Vodafone acquired an Indian asset and should have deducted tax at source on its payment to Hutchinson.

In October  it was suggested by Private Eye that Vodafone bought a German engineering company called Mannesmann for €180bn so it could use it to avoid paying tax. This move allegedly fell foul of British anti-tax avoidance laws. 

HMRC allegedly decided to give the company a way out, and allegedly let Vodafone off with at least £6 billion.

Vodafone agreed a tax settlement of £1.25 billion in July to resolve the long-running dispute. It said it has met all its tax obligations and had never received a bill for £6 billion, calling the figure “misleading”.