Autor: Claire (Xue) Peng

Vodafone Entities “Acting in Concert” in Terminating a Call Option Are Subject to Transfer Pricing Adjustment in India


TPI 2018, 104

The landmark judgement in India on the acquisition of the Hutchison group by the Vodafone group in 2007 – often referred to as “indirect transfer” – witnessed the victory of the taxpayer before the Supreme Court. After the Supreme Court ruling, the Indian government changed the law retroactively in 2012. In the post-acquisition structuring, a recent case on the termination of option rights brings Vodafone back to the centre of disputes.In this case,Vodafone India Services Pvt. Ltd (the taxpayer) terminated option rights under the framework agreement and paid a termination fee of Rs 21.25 crore (€ 2.55 million). The Income Tax Appellate Tribunal (the Tribunal) held that this transaction qualified as “deemed international transaction” due to the concept of “acting in concert” and was subject to capital gains tax. Due to such chargeability of income in the form of capital gains, transfer pricing provisions were invoked that resulted in a transfer pricing adjustment of Rs. 1,588 crore (€ 190.56 million) under the Indian transfer pricing regulations.The facts of the case are complicated, but this article focusses on the key aspects of the covered arrangements and transactions. From an international perspective, this case is particularly relevant. Contractual arrangements on participations with purely domestic third parties can be subject to transfer pricing assessment, provided the parties are “acting in concert” in India; the same may apply elsewhere whenever a similar anti-abuse approach is taken.