The Bombay High Court has ruled in favour of Vodafone in the long-running dispute with tax authorities. It is a huge boost for the British telecom group whose tax battles are seen as representing the troubles faced by foreign investors in India.
Vodafone has been caught in tax disputes ever since it entered India seven years ago. Indian tax authorities had accused Vodafone of under-pricing shares its parent, and had demanded tax of about $490 million ( Re. 3200 Crore). The tax demand was for two financial years to March 2011. Vodafone had maintained consistently the transaction was not taxable. Transfer pricing is the rate at which companies sell assets between units in different countries - a practice open to manipulation. Rules require all such tranasctions between group companies to be viewed suspiciously.
In another case, Vodafone is contesting a Re. 12000 crore tax demand for its acquisition of Hutchison Whampoa. Many other multinationals like IBM, Shell and Nokia also facing transfer-pricing cases.