tax evasion tax evasion India’s stand on the Vodafone group tax evasion could decided the country’s business climate. While the Vodafone group is in no mood to settle a $2.2 billion withholding tax claim by New Delhi, it is trying to drag Li Ka-shing’s CK Hutchison Holdings into the tax evasion scandal and ask them to cough up $5 billion. The more India engages in such antics, dragging on a five-year-old campaign of retrospective taxation, the greater the risk to its ambition of climbing 40 places in the World Bank’s ease-of-doing business survey this year. It ranked 130th in 2016.
CK’s Hutchison Telecommunications International Ltd. informed the Hong Kong stock exchange on Monday that it had received a penalty order from Indian tax authorities on Aug. 9. Include tax and interest demands made in February, and it appears India wants to help itself to more than 25 percent of CK Hutchison’s cash hoard.
The reason for the claim being: Li’s company sold its mobile-phone business in the country to Vodafone a decade ago when the British carrier purchased a Cayman Islands-based investment firm that controlled, via other offshore entities, a 67 percent stake in Hutchison Essar Ltd.
New Delhi wanted to tax Li’s windfall profit, but India’s top court held that it couldn’t, since the transaction was entirely offshore. Stung by that defeat, in 2012, India changed the tax code retrospectively, giving itself the right to impose a levy in cases of indirect transfer of assets.
In its 2014 election manifesto, Prime Minister Narendra Modi’s party accused the then-government of “tax terrorism,” giving rise to hopes that the dispute, which had spooked investors, was headed for a burial. The opposite happened.
Meanwhile, Vodafone, which is merging its India unit with rival Idea Cellular Ltd.BSE -2.56 %, is one step away from leaving the country. Still, as the tax demand on Hutchison shows, India’s willingness to cut off its nose to spite its face is still intact.
Will it hurt Li? Although the billionaire tycoon doesn’t have a major presence in India any more, he would surely prefer to end the matter. Otherwise, were Hutchison to even receive a dividend from an Indian company, the payout might be impounded.
That’s what happened recently with Cairn Energy Plc, which too is battling a multibillion-dollar retrospective tax bill in India in connection with a 2006 reorganization. When Vedanta Plc, having bought Cairn’s Indian operations, paid the seller a dividend on its 5 percent stake, New Delhi seized the $105 million outlay.
Post Your Comments