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Subject: Vodafone given $2.5bn Indian tax bill deadline

Written By: Philip Eno on 10/23/10 at 8:18 am

Indian tax authorities have given Vodafone 30 days to pay a 112bn rupee ($2.5bn, £1.6bn) tax bill, as part of an ongoing tax dispute.

The formal demand relates to the mobile phone company's 2007 purchase of the Indian telephone assets of Hong Kong conglomerate Hutchison Whampoa.

Vodafone will appeal against the tax at the Indian supreme court on Monday.

The firm says the $11bn transaction was exempt from tax because it took place between two offshore entities.

But the Indian tax department now says that Vodafone must pay the capital gains tax, and has handed the company its first formal tax demand.

"Vodafone strongly disagrees with the tax calculation," the mobile operator said in a statement.

"The tax authority is attempting to interpret Indian law as it has never been interpreted for the past 50 years, and this interpretation also goes against internationally recognised tax norms."

Vodafone is one of the biggest mobile operators in India, with 116 million customers, by virtue of a partnership with local company Essar group.

On the same day that the UK company received the tax demand, its Indian joint venture - "Vodafone Essar" - announced plans to launch 3G services in the new year.

The Indian subsidiary represents a significant investment on Vodafone's part, including a $2.6bn payment for its 3G licence.

The subsidiary plans a further $500m of 3G network investment.

"We need to get more certainty that regulation will not come back and bite us in order to confirm our investment," said Vodafone Group chief executive, Vittorio Colao, speaking to India's Economic Times newspaper.

"I have actually invested more in India because I do believe in the country, but of course now I also need a positive outcome from the tax case and stable regulatory environment to continue."

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