Vodafone verdict to win back investors

The Supreme Court ruling that Vodafone is not liable for taxes and penalties imposed by Indian authorities may deny the government revenue, but has certainly paved the way for cross-border mergers and acquisitions providing relief to foreign firms facing similar tax probes in India.

 The ruling entails that the British telecommunications major is not liable for taxes amounting to Rs 11,000 crore for 67 per cent stake it acquired in 2007 in CGP Investments Ltd, a Cayman Islands registered company which held the Indian telecom assets of Hutchison Essar.

While corporate India, other investors and analysts rejoiced the pronouncement for it has long-term implications for the country in need of whopping investments to ignite the economy, the government held consultation between concerned ministries over the decision, which has gone against the revenue authorities. “It is certainly a positive development and expected to make future M&As more flexible,” Mahesh Uppal, analyst and Director Com First India said. It will help the government in the long run in getting more foreign investments by creating a more investor friendly climate in India.

“Stability of institutional processes is one of the important requirements for attracting FDI. This decision will re-inject confidence in cross border mergers & acquisitions,” said Rajiv Kumar, Secretary General, Ficci.

The prolonged legal wrangle had created uncertainty among many foreign firms that were in the process of investing in the country. At least eight other companies, including AT&T, SAB Miller, GE, Cadbury, Sanofi and Vedanta, are facing similar tax related cases.

Another analyst said the verdict will be remembered more as victory of India’s fair, impartial and independent judicial system, where rule of law prevails notwithstanding the quantum of tax involved for the treasury.