Tax Treaty Case Law around the Globe 2012

India: Capital Gains and Tax Avoidance

14.1. Introduction

What is the line between tax avoidance and tax evasion? Where do a country’s borders extend when it comes to withholding obligations for taxpayers outside their jurisdiction and in respect of transactions completed outside its jurisdiction? In the complex corporate world of structures extending across borders between holding and subsidiary companies, when can such a structure be ignored? These are some of the issues before the Indian Supreme Court in the Vodafone case.

Vodafone, a major global player in the telecommunications sector, acquired control over the Indian telecom business of Hutchinson by way of a complicated corporate structure which involved the overseas transfer of a share of a holding company located in the Cayman Islands. This structure included several layers of companies below the ultimate operating company in India. The transfer of shares outside of India had not attracted any Indian tax liability in the past, but the price tag of USD 11 billion and the attendant globalized media attention made this a cause célèbre.

This chapter considers the recent Indian Supreme Court judgement in Vodafone International Hold...