Vodafone (VOD) – a UK mobile network operator and the largest mobile telecommunications network company in the world by turnover – according to Financial Times – risks of paying more than $4 billion in taxes, if it loses a court case against the Indian government.
The Indian government wants to tax Vodafone’s $11bn acquisition last year of a controlling stake in Hutchison Essar, the country’s fourth largest wireless operator.
India’s tax department is arguing that, even though Vodafone was the buyer, the UK group should have withheld an estimated $2bn of capital gains tax on the government’s behalf.
Vodafone argues the transaction is not taxable in India because it took place overseas.
The government insists that because the operating assets of Essar were in India, the deal should have been subject to Indian capital gains tax.
If Vodafone losses the case it could be required to pay a penalty of 100 percent of the tax owed, as well as annual interest of 12 percent.
The Indian parliament earlier this year passed an amendment to a bill to allow the government to take action against companies for not withholding taxes in a transaction. Vodafone declined to comment on the story, according to FT.