Tax Treaty Case Law around the Globe 2015

S. 229India: Whether Transactions between two Resident Companies are within the Scope of India’s Transfer Pricing Regulation: the Case of Vodafone (India) Services Pvt Ltd

D.P. Sengupta

I. S. 230Introduction and background

With the opening up of the Indian telecom sector to foreign direct investment through the joint venture route, Hutchison group of Hong Kong (Hutch) established itself in India and gradually expanded operations in different telecom circles with a maze of holding and subsidiary companies holding shares in each other. The telecom sector has gradually been deregularized: In the 1990s, Foreign Direct Investment (FDI) was allowed up to 49 %. In 2005, the same was increased to 74 % but the method of calculating the FDI cap was changed and indirect holding was also counted in the overall limit. Considering the growing telecom business in India, international telecom major Vodafone, which already had a small stake in India wanted to enter the Indian telecom sector in a big way and offered to buy out Hutch. The deal finally went through in the year 2007.

The Indian Revenue’s attempts to tax the capital gains arising from the transfer of Hutchison’s telecom business in India through transf...