Vodafone 2015 Annual Report Download - page 171

VIHBV has not received any formal demand for taxation in respect of the HTIL transaction following the effective date of the Finance Act 2012,
but it did receive a letter on 3 January 2013 reminding it of the tax demand raised prior to the Indian Supreme Court’s judgement and purporting
to update the interest element of that demand to a total amount of INR 142 billion. The separate proceedings taken against VIHBV to seek to treat
it as an agent of HTIL in respect of its alleged tax on the same transaction, as well as penalties of up to 100% of the assessed withholding tax for the
alleged failure to have withheld such taxes, remain pending despite the issue having been ruled upon by the Indian Supreme Court. Should a further
demand for taxation be received by VIHBV or any member of the Group as a result of the new retrospective legislation, we believe it is probable
that we will be able to make a successful claim under the Dutch-India Bilateral Investment Treaty (‘Dutch BIT’). On 17 January 2014, VIHBV served
an amended trigger notice on the Indian Government under the Dutch BIT, supplementing a trigger notice led on 17 April 2012, immediately prior
to the Finance Act 2012 becoming effective, to add claims relating to an attempt by the Indian Government to tax aspects of the transaction with
HTIL under transfer pricing rules.
On 17 April 2014, VIHBV served its notice of arbitration under the Dutch BIT, formally commencing the Dutch BIT arbitration proceedings.
An arbitrator has been appointed by VIHBV. The Indian Government appointed an arbitrator but he resigned in May 2015. The third arbitrator,
who will act as chairman of the tribunal, had been agreed by the two party-appointed arbitrators (prior to the Government’s arbitrator’s resignation)
but declined to accept the appointment. There is now likely to be a delay in appointing the chairman pending the Indian Government appointing
a replacement for its party-appointed arbitrator. If there is no subsequent agreement on appointment of a chairman, the International Court
of Justice will appoint the third arbitrator.
We did not carry a provision for this litigation or in respect of the retrospective legislation at 31 March 2015, or at previous reporting dates.
Other Indian tax cases
VIL and Vodafone India Services Private Limited (‘VISPL’) (formerly 3GSPL) are involved in a number of tax cases with total claims exceeding
£1.5 billion plus interest, and penalties of up to 300% of the principal.
VIL tax claims
The claims against VIL range from disputes concerning transfer pricing and the applicability of value-added tax to SIM cards, to the disallowance
of income tax holidays. The quantum of the tax claims against VIL is in the region of £1.3 billion. VIL is of the opinion that any nding of material
liability to tax is not probable.
VISPL tax claims
VISPL has been assessed as owing tax of approximately £260 million (plus interest of £190 million) in respect of (i) a transfer pricing margin charged
for the international call centre of HTIL prior to the 2007 transaction with Vodafone for HTIL assets in India; (ii) the sale of the international call centre
by VISPL to HTIL; and (iii) the acquisition of and/or the alleged transfer of options held by VISPL for VIL equity shares. The rst two of the three
heads of tax are subject to an indemnity by HTIL under the VIHBV Tax Deed of Indemnity. The larger part of the potential claim is not subject to any
indemnity. VISPL unsuccessfully challenged the merits of the tax demand in the statutory tax tribunal and the jurisdiction of the tax ofce to make
the demand in the High Court. The Tax Appeal Tribunal has now heard the appeal and ruled in the Tax Ofce’s favour. VISPL has lodged an appeal
(and stay application) in the Bombay High Court which was partially heard in April and concluded in early May 2015. In the meantime, (i) a stay of the
tax demand on a deposit of £20 million and (ii) a corporate guarantee by VIHBV for the balance of tax assessed remains in place pending a decision
on the appeal in the Bombay High Court which is expected during 2015. If VISPL loses the appeal, its terms of the stay of demand may be revisited
(and could be increased) while VISPL pursues a further appeal in the Supreme Court.
Indian regulatory cases
Litigation remains pending in the Telecommunications Dispute Settlement Appellate Tribunal (‘TDSAT’), High Courts and the Supreme Court
in relation to a number of signicant regulatory issues including mobile termination rates (‘MTRs’), spectrum and licence fees, licence extension
and3G intra-circle roaming (‘ICR’).
Public interest litigation: Yakesh Anand v Union of India, Vodafone and others
The Petitioner brought a special leave petition in the Indian Supreme Court on 30 January 2012 against the Government of India and mobile
network operators, including VIL, seeking recovery of the alleged excess spectrum allocated to the operators, compensation for the alleged excess
spectrum held in the amount of approximately €4.7 billion and a criminal investigation of an alleged conspiracy between government ofcials and
the network operators. A claim with similar allegations was dismissed by the Supreme Court in March 2012, with an order that the Petitioner should
pay a ne for abuse of process. The case is pending before the Supreme Court and is expected to be called for hearing at some uncertain future date.
One time spectrum charges: Vodafone India v Union of India
The Government of India has sought to impose one time spectrum charges of approximately €525 million on certain operating subsidiaries of VIL.
We led a petition before the TDSAT challenging the one time spectrum charges on the basis that they are illegal, violate Vodafone’s licence terms
and are arbitrary, unreasonable and discriminatory. The tribunal stayed enforcement of the Government’s spectrum demand pending resolution
of the dispute. The Indian Department of Telecommunications (‘DoT’) recently proposed that, since several operators have brought similar
challenges in different jurisdictions, they move a transfer petition before the Supreme Court. Accordingly, the matter in the TDSAT stands adjourned
until 11 August 2015.
3G inter-circle roaming: Vodafone India and others v Union of India
In April 2013, the DoT issued a stoppage notice to VIL’s operating subsidiaries and other mobile operators requiring the immediate stoppage of the
provision of 3G services on other operators’ mobile networks in an alleged breach of licences. The regulator also imposed a ne of approximately
€5.5 million. We applied to the Delhi High Court for an order quashing the regulator’s notice. Interim relief from the notice has been granted (but
limited to existing customers at the time with the effect that VIL was not able to provide 3G services to new customers on other operators’ 3G
networks pending a decision on the issue). The dispute was referred to the TDSAT for decision, which ruled on 28 April 2014 that VIL and the other
operators were permitted to provide 3G services to their customers (current and future) on other operators’ networks. The DoT has appealed the
judgement, which is pending before the Supreme Court.
Overview Strategy review Performance Governance Financials Additional information Vodafone Group Plc
Annual Report 2015
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