India turns retro tax gun on Hutchison, seeks Rs32,320 cr

Unwilling to give up its retrospective tax demand on the Hutchinson-Vodafone deal despite a change in government, the Income Tax Department has slapped a Rs32,320 crore demand in tax, interest and penalty on Hong Kong-based C K Hutchison Holdings Ltd for alleged capital gains it made on the $11 billion sale of its mobile business in India to UK's Vodafone Group in 2007.

In a filing to the Hong Kong stock exchange, billionaire Li Ka-shing's Hutchison Holdings said its unit, Hutchison Telecommunications International Ltd (HTIL), has been served with a tax demand of about Rs7,900 crore, together with Rs16,430 crore of interest and another Rs7,900 crore in penalties.

"HTIL (Hutchison Telecommunications International Limited) received on February 13, 2017, from ITA (Indian Income Tax department) an assessment order dated January 25, 2017, in respect of tax of approximately Rs79 billion (HK$9.6 billion) on capital gains in connection with the acquisition plus aggregate interest on the CGT of approximately Rs164.3 billion (HK$20 billion)," the company said in a filing in Hong Kong stock exchange.

"HTIL received on August 9, 2017, from ITA a penalty order dated July 3, 2017, for a penalty of approximately Rs79 billion (Rs 7,900 crore).

"For the reasons set out in the announcement, HTIL continues to believe that the taxes cannot be validly imposed on HTIL," the statement added.

''Accordingly the company continues to believe that the orders would not have any effect on the company's financial condition or the results of its operations for any period," it said, without saying what course of action would it take.

In 2007, Vodafone had acquired a 67-per cent stake in the cellular business of Hutchison Whampoa, which is now part of C K Hutchison.

This is the first time a tax demand is being raised on the Hong Kong firm. So far, the Indian government had been pursuing the tax from Vodafone.

Vodafone was initially slapped with Rs7,990 crore tax demand for not withholding tax from payments it made to Hutchison. The outstanding tax after including interest and penalty runs over Rs20,000 crore.

It challenged the levy and the Supreme Court in January 2012 ruled that the company was not liable to pay any tax over the acquisition of assets in India from Hutchison as the deal was completed overseas.

Thereafter, the government in May 2012 amended the tax laws with retrospective effect and claimed taxes. Vodafone has disputed the levy and the matter is before an international arbitration panel.

The deal happened when HTIL was a listed company. It was subsequently privatised and ceased business operations. Neither HTIL nor its subsidiaries have any presence in India.

Besides Vodafone, the retrospective legislation was used to levy a principal tax liability of Rs 10,247 crore on another British company, Cairn Energy Plc. That matter too is before an international arbitration panel.