Acquisition of Hutchison Essar (India) by Vodafone (UK):

In the biggest telecom M&A deal involving India, Vodafone Plc. (UK) acquired for $11.1 billion a majority interest in Hutchison Essar Limited, an Indian telecommunications company in May 2007. The success of the acquisition is being debated in light of the unprecedented demand by the Indian Revenue Service for withholding capital gains tax of $2.1 billion, and penalties and interest of $2.9 billion from Vodafone. This paper describes the complexity of the transaction through which Vodafone acquired a controlling interest in Hutchison Essar, the rationale for the tax demands made by the Indian Revenue Service, reasons for Vodafone’s denial of tax liability, verdicts and bases of conclusions of the Bombay High Court and India’s Supreme Court and parliamentary developments in India since the Supreme Court judgment. The case holds implications for other companies that are facing similar issues with the Indian Revenue Service, and to policy makers in other countries for designing strategy to tax indirect share transfers.