Vodafone confident of avoiding India tax bill

LONDON, Nov 1 (Reuters) Mobile phone company Vodafone Group Plc says it is ''quietly confident'' it can avoid paying an estimated LONDON, Nov 1 (Reuters) Mobile phone company Vodafone Group Plc says it is ''quietly confident'' it can avoid paying an estimated $2.0 billion tax bill on its acquisition of one of India's top cell phone companies, Hutchison Essar.

Vodafone, the world's largest mobile phone company by sales, said on Thursday it had taken legal and tax advice from the outset of negotiations for the $11.1 billion cash purchase of a majority stake in now re-named Vodafone Essar.

''We don't believe there is any tax to be paid,'' a company spokesman said.

But in a case closely watched by potential foreign investors in India, the Financial Times daily said the Bombay High Court had allowed India's income tax department to pursue an investigation into the claim and had scheduled another hearing for December.

Vodafone Chief Executive Arun Sarin, who is the vice chairman of Vodafone Essar, has said the company is talking to the tax department and has stressed capital gains tax is usually paid by the seller, not the buyer.

However, the tax department argues the deal is liable for tax because most of the assets are based in India and because under Indian tax law, buyers have to withhold capital gains tax liabilities and pay them to the government.

The battle over tax is the latest irritation in Vodafone's attempts to break into one of the world's fastest-growing mobile phone markets. The company declined to comment on how long it thought this latest battle could be drawn out.

Sarin, a U.S. citizen but one of India's best-known expatriate businessmen, complained in July that India's ''billionaire losers' club'' had lobbied local cabinet secretaries and ministers to demand that the deal be unwound.

Vodafone edged out some powerful Indian business groups to secure a direct 52 percent of Hutchison Essar from Hutchison Whampoa , the Hong Kong conglomerate, in February.

Two Indian companies, which own another 15 percent of the company, agreed to become Vodafone partners in a deal aimed at meeting India's foreign ownership rules. India's Essar Group owns the remaining 33 percent of the company.

REUTERS DKS GC2016 .0 billion tax bill on its acquisition of one of India's top cell phone companies, Hutchison Essar.

Vodafone, the world's largest mobile phone company by sales, said on Thursday it had taken legal and tax advice from the outset of negotiations for the .1 billion cash purchase of a majority stake in now re-named Vodafone Essar.

''We don't believe there is any tax to be paid,'' a company spokesman said.

But in a case closely watched by potential foreign investors in India, the Financial Times daily said the Bombay High Court had allowed India's income tax department to pursue an investigation into the claim and had scheduled another hearing for December.

Vodafone Chief Executive Arun Sarin, who is the vice chairman of Vodafone Essar, has said the company is talking to the tax department and has stressed capital gains tax is usually paid by the seller, not the buyer.

However, the tax department argues the deal is liable for tax because most of the assets are based in India and because under Indian tax law, buyers have to withhold capital gains tax liabilities and pay them to the government.

The battle over tax is the latest irritation in Vodafone's attempts to break into one of the world's fastest-growing mobile phone markets. The company declined to comment on how long it thought this latest battle could be drawn out.

Sarin, a U.S. citizen but one of India's best-known expatriate businessmen, complained in July that India's ''billionaire losers' club'' had lobbied local cabinet secretaries and ministers to demand that the deal be unwound.

Vodafone edged out some powerful Indian business groups to secure a direct 52 percent of Hutchison Essar from Hutchison Whampoa , the Hong Kong conglomerate, in February.

Two Indian companies, which own another 15 percent of the company, agreed to become Vodafone partners in a deal aimed at meeting India's foreign ownership rules. India's Essar Group owns the remaining 33 percent of the company.

REUTERS DKS GC2016