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INTRODUCTION
On January 20, 2012, the Supreme Court of India announced its judgment in favor of Vodafone International Holdings B.V. ("Vodafone").1 In February 2007 Vodafone acquired all of the shares (in fact a single share) of CGP (Holdings) Limited ("CGP"), a Cayman Islands company, for $11.1 billion from Hutchison Telecommunications International Limited ("HTIL"), a Cayman Islands company. CGP was a holding company that indirectly, through various Indian and Mauritian intermediary companies, held a 67% interest in Hutchison Essar Limited ("HEL"), an Indian telecommunications company.2 The Indian Tax Authorities (the "Indian Revenue") subsequently asserted that this transaction was taxable in India and that Vodafone was liable to withhold Indian tax from the purchase price of $11.1 billion paid to HTIL and accordingly raised a demand of approximately $2.5 billion.
The Vodafone case is noteworthy for several reasons: Vodafone is one of a number of companies that the Indian Revenue has asserted is subject to tax in India as a result of the transfer of shares in a non-Indian holding company that indirectly owns shares in an Indian company. Therefore, the judgment, insofar as it has clarified Indian tax law as it holds today, should be of keen interest to companies with operations in India, particularly those having a similar tax dispute. However, as we discuss in the final section of this article, in March the Government of India proposed legislation that, if enacted by the Indian Parliament, would overturn the Supreme Court's judgment in Vodafone. Thus, whether Vodafone will ultimately be liable for tax in India remains uncertain, despite the company's victory in the courts.
The Union of India's effort to tax indirect share transfers is part of a trend among emerging economies. How India ultimately resolves the issue of taxing indirect share transfers may influence others in the international community. In pursing Vodafone, the Indian Revenue advanced several legal arguments to support its case for imposition of the withholding tax. From a U.S. legal perspective, these arguments and the courts' response to them are of interest because of various parallels between the two countries' tax jurisprudence. More importantly, tax advisors of all jurisdictions may wish to place reliance on the learning in this case and plan future share transfers with these arguments in mind...