(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)
By Una Galani
MUMBAI, Aug 30 (Reuters Breakingviews) - India’s stubbornness over tax is a bad call. New Delhi is now trying to wring the same taxes out of buyer and seller in an old telecoms deal. Slapping a $5 billion demand on Hong Kong’s CK Hutchison , the flagship group of tycoon Li Ka-shing, while also chasing Britain’s Vodafone, is just plain farcical. Prime Minister Narendra Modi must do two things if he really wants to make good on a three-year old pledge to end “tax terrorism”.
CK Hutchison has been told to cough up for capital gains, interest, and penalties on the 2007 acquisition by Vodafone of the Indian mobile operations of Hutchison Telecoms International, which now sits inside the $50 billion Hong Kong group. India is also locked in international arbitration with Vodafone over the same deal. All despite a judgement in 2012 by Supreme Court of India that the transaction was not taxable.
There is almost nothing to gain. For a start, India’s claim is based on a retrospective rule introduced after the court verdict and lacks credibility. Investors, probably correctly, doubt Li will have to pay up: shares of the Hong Kong conglomerate have barely budged since Monday.
Even if the claim holds water legally, CK Hutchison could easily refuse to pay. Unlike other multinational companies battling similar claims such as Britain’s Cairn Energy, which is now in turn seeking billions of dollars of compensation from New Delhi, CK Hutchison has inconsequential holdings in India. What is more, the tax bill will further serve as a deterrent to Li if he ever harboured any ambitions of growing his retail-to-oil empire in the fast-growing country.
India might argue this is not a new instance of “tax terrorism”, but an old case that must run its full legal course. But the situation illustrates the flaws of trying to draw a line under the debacle without addressing the legal mechanism that makes such claims possible. The cleanest way for India to ensure the rhetoric matches the reality on the ground would be to repeal the underlying legislation and rein in the bureaucrats frantically trying to enforce it.
On Twitter twitter.com/ugalani
- Hong Kong’s CK Hutchison said on Aug. 28 that it had received a demand from the Indian tax authorities for HK$32.9 billion ($5.0 billion).
- The demand relates to alleged capital gains, interest, and penalties on the 2007 takeover by British telecom operator Vodafone of the Indian mobile arm of Hutchison Telecommunications International. The separately listed HTI was then privatised and is now part of CK Hutchison.
- CK Hutchison, backed by tycoon Li Ka-shing, rejected the demand, referring to a 2012 ruling by the Supreme Court of India that the transaction was not taxable in India.
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Editing by Quentin Webb and Katrina Hamlin