Despite expectations that the landmark Vodafone decision may momentarily relieve concerns over international cross-border transactions with Indian companies, business leaders are forewarned that legislative responses from the Government of India could alter the landscape again, according to commentators on a Webcast today sponsored by KPMG LLP, the U.S. audit, tax and advisory firm.
The Indian Supreme Court ruled on Jan. 20 that Vodafone Group PLC, the British-based wireless service provider, was not liable for withholding taxes on its $11 billion acquisition in 2007 of a controlling interest in an Indian mobile business of Hutchison Whampoa Ltd., of Hong Kong, closing a chapter on what had become a closely watched case for foreign investors in India.
"The Vodafone ruling is clearly welcome news for those buying, selling or reorganizing business lines that have a connection to India, as it provides certainty. However, companies need be on the lookout now for any action that the government or tax authorities in India may take in response to the Court's decision," said Rodney J. Lawrence, national principal-in-charge of the International Corporate Services practice at KPMG LLP.
Although facts and circumstances of each transaction still need to be carefully examined to determine the underlying tax implications, KPMG professionals on today's U.S.-High Growth Markets Webcast explained that this decision can now serve as a useful guide to understanding and assessing the risk of additional Indian taxes being payable, either by a seller or buyer of businesses with operations in India.
Lawrence reinforced a comment emphasized during the Webcast by KPMG partners: Indian authorities could respond to the Vodafone ruling by proposing changes in the forthcoming Indian Union Budget this year (expected to be released in March 2012), or they could choose to pursue later legislative changes that would ultimately render the Court ruling moot.
"We're telling our clients who currently have or who are considering acquisitions or joint ventures with Indian entities that their first step right now should be to carefully review their present investment and tax structures, to ensure that they meet the necessary parameters set by the Court in light of the Vodafone judgment," said Tom Hopkins, India Inbound Investment lead tax partner for KPMG LLP.
"Companies have the opportunity now to make changes that could help them avoid any unnecessary disputes and litigation in the future," Hopkins added. "Whether the Vodafone decision sets the standard for future transactions with Indian companies is clearly a question for longer-term consideration."
KPMG professionals who provided perspective and insight during the KPMG U.S.-High Growth Markets Webcast included: Arun Kumar, principal-in-charge of KPMG's U.S.-India practice; Vikas Vasal, a partner with KPMG in India currently on rotation in the United States; and Charles Cope, International Tax principal in KPMG's Washington National Tax practice.