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硕士毕业论文 Analysis Of Pre And Post Double Taxation Treaty Agreement THE VODAFONE CASE

The High Court of Mumbai’s verdict was that Vodafone International Holdings B.V, a Holland subsidiary of Vodafone Group PLC, was responsible to deduct Indian capital gains tax for the transaction involving the acquisition of 67 percent of Hutchison Essar, an Indian mobile phones operator, in 2007. Hutchison Essar was a subsidiary of a Cayman Islands company, Hutchison Telecommunication International Ltd. 11

Interestingly, the Indian Tax Authority stated that India had tax claims right over an acquisition completed fully outside of India between non-Indian companies. Following this statement, the Indian tax authority could have right on deals effected outside of India, but concerning indirect transfers of interests in Indian entities.11

Holland-based Vodafone International Holdings BV acquired Cayman Islands CGP investments from Hutchison Telecommunication International Ltd. CGP investments involve various Mauritian and BVI subsidiaries which altogether held 67 percent holdings in Hutchison Essar Limited6. The Tax Department of India claimed that the acquisition of CGP investments constituted the transfer of underlying Indian assets, Holland-based Vodafone subsidiary was liable to deduct the Indian capital gains tax of around $2.1 billion from the payment of $11 billion to Hutchison. 13

The argument of Vodafone was that if the stocks of the underlying Mauritius-based companies were sold in India, the bilateral treaty would have given capital gain tax relief.6 Even though, the High Court of Mumbai reckoned that the intermediate subsidiaries in conjunction with the Cayman target and Hutcheson Essar were incorporated in Mauritius, had a valid Certificate of Resident of Mauritius, the criteria to get Indian capital gain tax relief under the indo-Mauritius Tax Treaty, the High Court initiated proceeding against Vodafone.12

After the High Court analysed the facts of the case in deep, discussed due diligence document, interim and final annual report and regulatory disclosures, they observed that the operation comprised “the transfer of few rights and entitlements other than the shareholding in the Cayman entity alone.” These encompassed a premium for more control on the cellular sector, the Hutch brand’s right in India, a non-competition with the Hutch group accord, the handover of intra-group loan obligations and some option rights on specific Indian entities. These facts showed that Vodafone had “significant nexus” with India and enough for the High Court to take actions against Vodafone.13 IPL and Mauritius connection

Indian Premier League (IPL) has built-up into a huge $4 billion big money package of sponsors, TV rights and other franchises, charges and other proceeds. Recently, many IPL activities have been suspected to be unscrupulous, illegitimate and even illegal. Politicians and others are alleged to be doing the practice, called round-tripping, of converting their black money into legal money via Mauritius and other jurisdictions, even though officially recognised, have secrecy of their identities through shell companies and “benami” (False) names. There have been claims about match fixing and fixing of bids for team franchises as well as bribes, tax evasion, illicit betting and violation of foreign investment rules.15

Tax officials ordered the Board of Control for Cricket in India (BCCI) to release the IPL’s balance sheet, the ownership and holding structure of franchisees and their agreement with IPL. Failure to do so, the tax official would then have recourse to the lifting of the corporate veil and track down information from the registered companies’ country, which in many cases is found to be Mauritius. There is a problem when Indian investors route their investments through Mauritius for money laundering purposes. The Indo-Mauritius taxation treaty includes the provision on exchange of information which tax officials will use to obtain information on the Mauritius-based companies’ ownership. However, there will be a legal procedures taking place before the banking information is divulged to another country.14

The transaction may not be as simple if taxpayers have been jumping jurisdictions to conceal their identity and sources of funds. For example, Tax officials may be forced to look not only in Mauritius to follow the source of fund if the Mauritius-based company borrowed fund from entity from another jurisdictions such as Cayman Islands or Bermuda, two countries where India does not have tax information exchange agreement. However, after the G20 summit, Tax havens have agreed to employ the exchange of information agreements in accordance to the standards set by the Organisation for Economic Cooperation and Development (OECD). Bank secrecy will no longer prevail and refusal to disclose the details on the home-based companies can make the country black-listed for harmful tax practices.14



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