Vodafone decision: All is not lost, perhaps nothing

The High Court of Bombay has just upheld the Indian revenue department's jurisdiction to proceed against Vodafone on its $11.1-billion acquisition of Hutchison's Indian telecom operations back in February 2007. While this may sound like an extract from the M&A doomsday prophesy, there is more to the High Court's decision than meets the eye.

The story so far

By way of a quick recap, the story began when Netherlands-based Vodafone International Holdings BV (Vodafone) acquired Cayman-based CGP Investments from Hutchison Telecommunication International Limited (Hutch) also based in the Cayman Islands. CGP Investments held a number of underlying subsidiaries in the BVI and Mauritius which ultimately held an approximately 67-per cent stake in Hutchison (now Vodafone) Essar Limited, one of largest players in the Indian telecom industry.

In September 2007, the tax department initiated proceedings against Vodafone in an attempt to recover around $2.1 billion in taxes which, in its view, should have been withheld from payments made to Hutch. It justified its position by piercing the corporate veil of numerous intermediary entities to hold that the transaction led to the indirect transfer of controlling interest in the Indian operating company.

After moving the High Court and then the Supreme Court, the matter was finally sent back to the tax department to formally decide on the issue of whether it had jurisdiction to proceed against Vodafone.

By May 2010, on scrutinising innumerable transactional documents, the tax department issued a voluminous order establishing that it had the necessary jurisdiction to proceed against Vodafone.