London: Vodafone Group Plc, which has resisted setting aside money for a $2.2 billion (Dh8.08 billion) tax bill in India, may make a provision to cover the legal risks, chief financial officer Andy Halford said in an interview.
The world’s second-largest mobile-phone operator is consulting on the need for a provision after an amendment by India’s government to its tax law made the company potentially liable for the payment, Halford said. A decision will be made by November, he said.
“The situation has changed and we are looking at it,” Halford said from Vodafone’s headquarters in Newbury, England. The company’s test over whether to take a provision “is now being applied differently against a recently introduced, albeit retrospective, legislation.”
Vodafone in January defeated the initial government demand for taxes stemming from its 2007 acquisition of Hutchison Whampoa Ltd’s Indian operations in the country’s top court. In response, the Indian government amended the law to retrospectively tax cross-border transactions dating back to April 1, 1962.
The British operator, which also faces increased costs for radio frequencies in India, is relying on fast-growing markets such as India as consumers cut spending in debt-stricken Europe, where the operator derives as much as 70 per cent of its revenue. Vodafone had refused to take a provision as it waited for the court ruling, saying it wasn’t liable for the bill.
Market growth
“They continue to argue they’re in the right but if the rules are changed and they get undermined, then they’ll have to include it,” said Andrew Hogley, an analyst at Espirito Santo in London, who values the liability at £1.3 billion (Dh7.73 billion).
The operator is scheduled to report first-half earnings in November. For the 12 months through March 2013, Vodafone is predicted to report net income of £7.9 billion, according to 13 analysts surveyed by Bloomberg. China Mobile Ltd is the world’s biggest wireless carrier.
Vodafone and operators including Norway’s Telenor ASA and Sunil Mittal’s Bharti Airtel Ltd. contributed to building the world’s second-biggest mobile-phone market after India opened up the industry in the 1990s. Subscribers have grown 158 times to more than 900 million since 2001, and competition means users enjoy some of the world’s cheapest calls.
Vodafone may have to pay as much as $4 billion in spectrum costs at the upcoming Indian auction, Hogley said.
Offshore transaction
Vodafone said in May it has invested more than 500 billion rupees ($9.3 billion) in India since 2007. The carrier has said it will pursue international arbitration if it is found liable for the taxes even as the government started making “more conciliatory comments,” Halford said.
“We would be foolhardy to go backing off,” Halford said by phone on September 14. “Because it is mid flow and it is big we obviously need to avail ourselves of all the options that are in front of us.”
Vodafone and Hutchison conducted their $10.7 billion transaction offshore, with Vodafone’s Dutch subsidiary, Vodafone International Holdings BV, acquiring CGP Ltd, a Cayman Islands company controlled by Hong Kong-based Hutchison.
Halford made the comments the same day India threw open its retail and aviation industries to foreign investment as a newly assertive government bids to shake off a sense of crisis over the slowing economy and a stalled agenda.
Vodafone’s UK corporation tax, which accounts for 4 per cent of group profits, will remain low as the company increases spending in the country on a faster wireless network, Halford said. Vodafone offsets costs from its purchase of spectrum as well as interest costs on network deployment in the UK and elsewhere.
“A business that has made disproportionate contributions to the UK and is allowed to offset a large part of its overall group debt against its UK earnings is not going to be a high taxpayer, it may be a zero taxpayer,” he said.
