Hutchison Whampoa (HWL), and not Vodafone, might be liable for a $2b tax bill from the Indian govt on the deal in which sister firm Hutchison Telecoms International (HTIL) sold a majority stake in Indian cellco Hutchison Essar to Vodafone.
According to Hong Kong shareholder activist David Webb, HTIL indemnified Vodafone against tax claims when HTIL unit CGP Investments agreed to sell its 67% stake in Hutchison Essar to Vodafone International for $11.1 billion in 2007.
CGP was incorporated in the Cayman Islands, so the sale of CGP was entirely offshore.
“However, the Indian tax authorities don't see it that way, and have launched a tax claim estimated at some $2 billion…on the transaction,” says Webb.
“[The government] say that it is the underlying assets which matter [and] since HTIL has no assets in India, [it is] going after Vodafone for not withholding and paying the tax on the transaction.”
In the event that the Indian government is successful in its tax claim, Webb says Vodafone may struggle to recover the tax from HTIL under the tax indemnity clause, since HTIL is now a 100% HWL subsidiary following its privatisation in May.