Extended Background

Telecom MNEs like Vodafone operate across complex group structures, especially in fast-growing markets like India. The company executed a major offshore M&A deal, acquiring control of an Indian subsidiary through foreign holding companies. At the time, Indian tax law’s reach into such “indirect” asset transfers was ambiguous.

Detailed Arguments

Taxpayer

• Argued that the transaction was foreign-to-foreign, involving overseas companies and no direct transfer of Indian assets.

• Employed the legal form principle to claim Indian tax did not apply.

Tax Authority

• Asserted the deal conferred effective control over Indian assets and thus should be taxed as a domestic transfer.

• Intended to apply the “look-through” principle—economic substance over transaction form.

Court Reasoning

• India’s Supreme Court ruled for Vodafone, quashing the $2.2B assessment as unsupported by then-current law.

• However, Parliament soon stepped in with retroactive legislation, extending tax reach over such indirect transfers in future cases.

Procedural Journey

• High-profile audit followed by a series of court challenges ending with India’s highest court.

• Revenue authority responded by amending the law, not by pursuing further appeals.

Implications Beyond the Case

• Demonstrates that TP/tax law boundaries can change rapidly in emerging markets, sometimes through retroactive law.

• For MNEs: legal success is not always final—track law and politics after key victories.

• Lesson: Structure deals with both current rules and future policy shifts in mind, document effects on local assets.

Original Case Link:

Supreme Court of India (HTML)