The Mumbai High Court is to decide on a recent taxation dispute between Vodafone and the Indian tax authorities.

The tax authorities are claiming that Vodafone owes some $2 billion for its $11.2 billion takeover of Hutchison Essar, the major mobile operator in India.

In May 2007, Vodafone took control of Hutchison Essar, running it from its Hong Kong based Hutchison conglomerate. Vodafone advisors blowing claim the deal took place between two foreign players - the Dutch group owned by Vodafone and a Hutchison company registered in the Cayman Islands - and that the question of paying tax to the Indian government does not arise. But the tax authorities said they do have a capital gains claim because the assets are based on Indian soil.

Vodafone filed a writ pleading for an injunction against the government’s investigation on the taxation issues of the deal. The battle is expected to be a long one, with the losing side appealing to the higher court regardless of which way the verdict goes.

The dispute began last year after changes were made to the Indian tax structure in the budget. The first hearing didn’t last long, due to the unpreparedness of the authority. The delay gave Vodafone time to make necessary changes to its submission.

The telco is not in a compromising mood. A Vodafone spokesperson reportedly said the company believes that there is no such tax due, and that it has been advised not to pay.

Vodafone is not the only multinational involved in this kind of dispute. Even General Electric and AT&T have been scrutinised by India's revenue authorities over a deal. UK and other European multinationals are likely to keep a watchful eye on the five-day hearing before investing in India. X

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