UK-based Vodafone Group is likely to pay a withholding tax of Rs 3,500-3,700 crore (Rs 35-37 billion) on the purchase of 22 per cent equity held by Essar's Mauritius arm in the Vodafone-Essar joint venture.The development follows withdrawal of a tax application by Vodafone's wholly-owned subsidiary based in Mauritius.
"Vodafone Mauritius (subsidiary of Vodafone) withdrew tax dispute petition from Authority for Advance Rulings (AAR), CDBT chairman Prakash Chandra said in New Delhi.
He said the Income Tax Department now presumes that Vodafone will pay the withholding tax after withdrawal of the application.
"Tax liability will be around Rs 3,500 to Rs 3,700 crore, including surcharge," he said and hoped it would be paid in this fiscal.
He said the development will have tax implications on similar cross border mergers and acquisitions.
Essar's 22 per cent state held by its Mauritius subsidiary is valued at $3.8 billion, on which the Income Tax Department is likely to get withholding tax.
The remaining 11 per cent of Essar's stake held by its Indian subsidiary is valued at $1.2 billion, making the total deal size $5 billion.
On March 31, Vodafone had agreed to pay $5 billion to buy Essar out of the Indian joint venture. As part of the deal, Essar agreed to exercise its right to sell 22 per cent stake to Vodafone while the British telecom major exercised its right to buy further 11