This Alert summarizes the favorable decision of the Supreme Court of India (SC) rendered to Vodafone International Holdings BV (Vodafone) in conjunction with taxability of Vodafone’s indirect acquisition of Indian company’s shares through an intermediary foreign holding company.

While setting aside the negative decision of the Bombay High Court (HC), the SC, in a landmark judgment, held that an indirect transfer would not be taxable in India.

The provisions under the Indian tax laws that assign the rights of taxation on income need to be strictly followed and, in the absence of a “look through” provision, an indirect transfer would not be taxable in India.

Further, the SC accepted that tax planning within the framework of law is permissible, unless the Indian tax authorities can establish that the transaction is a “sham.”

The transaction is not subject to India’s withholding tax provisions when the transaction is not taxable in India.

The SC also observed that the inclusion of an anti-abuse provision under the statute/tax treaty is a matter of national economic policy and, in the absence of the policy, cannot be implied.

Further details are available from the Ernst & Young International Tax Alert which can be accessed using the link below:

• India’s Supreme Court rules favorably in the Vodafone case (pdf, 3.36 MB)