Page 25 - DCOM508_CORPORATE_TAX_PLANNING

Corporate Tax Planning

Notes Self Assessment

Fill in the blanks:

13. The chargeability is based on the nature of ……………..that is whether it is revenue or
capital.
14. For a senior citizen being a resident individual who is of the age of 60 years but not more than
80 years at any time during the previous year, the basic exemption limit is………….....
15. In the case of …………………. companies, the rate of surcharge is 2%, where the total
income exceeds ` 1 crore.

Case Study Vodafone Tax case - A Case Study for Investments
in India

ndia Inc has been surging ahead audaciously with the support of its Information
Technology developments with its repertoire of resources. Global players have been
Ieying the Indian market, owing to immense opportunities that the continent provides;

both in terms of expansion and profit. Investment patterns in India have shown positive
growth over the years with significant process on the de-regulation front. India has

been greatly involved with the G-8 and G-20, including signing of the Double Taxations
Avoidance Agreements/Treaties (DTAA) with various tax-haven countries. This has
boosted the image of India as a ‘lookout destination’ for investment and an emerging
hub for economical activities. World Report 2010 ranked India as the 9th most attractive
investment destination, while Bloomberg Global Poll conducted in September 2010 put
India in the third position, above the United States of America (US).

However, the very same image is said to have taken a beating with the recent Vodafone
Tax case, which has been revolving in courts since 2009. With clear signs of the court ruling
in favour of the tax authorities, many global companies are said to be rethinking their
investment plans in India, keeping in mind the impact of the judgment on the taxation
front. The Doing Business Report 2011 of World Bank has ranked India at 134, below
neighbouring countries like Pakistan and Bhutan. This is a result of procedural diffi culties
for start-up companies and investment companies, in India and abroad.

Tax regulations play a major role in cross border transactions and investments in a country.
Tax havens, open borders and DTAA countries are major destinations for investment
through Foreign Direct Investment (FDI) or other routes. The Vodafone tax case throws
an interesting question on the taxability of a non resident company acquiring shares of a
resident company through an indirect route. This is a landmark case, as it is for the fi rst time
that the tax departments have sought to tax a company through a mechanism of tracing the
source of acquisition. While we have heard about lifting the ‘corporate veil’, this instance
has set a rare example wherein the Indian tax authorities have gone to length to interpret
the existing tax laws, to bring a global company like Vodafone to its tax ambit.
Vodafone International Holdings BV, based in Netherlands and controlled by Vodafone UK,
obtained the controlling interest and share of CGP Investments Holdings Ltd (CGP) located
in Cayman Island for a value of US $ 11.01 billion from Hutchinson Telecommunications
International Ltd. (HTIL), which had stake in Hutchinson Essar Ltd (HEL) that handled
the company’s mobile operations in India. HEL had its stake in CGP Holdings, from which
Vodafone bought 52 per cent of HEL’s stake in 2007, thereby vesting controlling interest
over them. The Bombay High Court, on September 8, ruled that where the underlying
Contd...

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