Terming the $2.6 billion tax liability on the company as “inequitable”, UK-based Vodafone today questioned the Indian authorities for not raising the tax claim on the party (Hutchison) which made profit by selling its stake.

Vodafone exuded confidence that there was no tax payable on its deal for buying majority stake of Hutchison in Indian telecom firm Hutchison-Essar for over $11 billion in 2007.

Indian tax authorities here have raised a demand of about $2.6 billion tax on the deal.

“It [the deal] is not governed by Indian tax rules and consequence of that is that there is no tax that is payable…Second, we would observe the party that made the profit was not us and therefore, the party that should be paying the tax is not us,” Vodafone Group Chief Financial Officer Andy Halford told PTI.

Vodafone had earlier also said that under existing Indian laws it was not required to withhold tax on the deal because the transaction took place in the Cayman Islands and both the buyer and seller were foreign.

Hutchison controlled its Indian subsidiary through a Cayman Island company called CGP, whose shares were sold to Vodafone.

“We find it strange that we are being pursued and the seller has not been pursued. That does seem to us to be very inequitable. So, after four years, we have not seen anything that will change this stance and we will hope that we get the just answer,” he added.

Vodafone has maintained that the $2 billion-tax demand by the Indian authorities is “contrary to international taxation principles”.

Tax authorities have said Vodafone is liable for not deducting tax at source from payment made to Hutchison.

Citing the example of $2.3 billion Tata-Jaguar deal in 2008, Halford said, “Tatas bought Land Rover in the UK in a similar time to this. We have not heard the UK government saying you need to make an extra tax payment.”

Asked if the company has made provision for the tax demand in case the judegement did not favour them, Halford said, “At this point in time, we have not made any provision in our accounts to have to pay this. The view is taken on the back of legal advice and tax advice that have we have had over the four year period.”

“We have had our own independent auditors, they are comfortable with the stand that we have taken,” he added.

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