Acquisition of hutchison essar (India) by Vodafone (U.K.): a case in international taxation of indirect transfer of shares

Abstract

Vodafone is recognized globally as a seminal case in which the taxation of indirect transfer of shares was litigated before a country’s highest judicial court. Vodafone Group plc, through a web of its directly and indirectly owned subsidiaries in different tax jurisdictions, acquired a majority interest in Hutchison Essar, an Indian telecommunications company. For failing to withhold taxes, the Indian Revenue Service has assessed $5 billion in taxes and penalties on Vodafone. Whether India’s position to tax indirect transfer of shares between two non-Indian entities is consistent with the practices of OECD countries such as the U.S. and whether such tax measures help economic competitiveness are hotly debated topics The case can be used in a graduate course in international taxation, or in a capstone course to address the topics of tax research and tax policy. It helps students to (1) research tax literature in the U.S. and a foreign country and apply it to a real-world context, (2) understand a complex acquisition transaction and its tax ramifications, (3) determine whether a similar transaction would be taxable in the Organisation for Economic Co-operation and Development (OECD) countries, and (4) evaluate the pros and cons of taxing the transfer of shares between two foreign entities by tax authorities.