Retrospective tax: 5 deals in litigation over capital gains

Vodafone Group's 2007 acquisition of Hutchison Essar may be the most high-profile capital gains tax case in recent memory, thanks to the very public spat between it and the government, but there are a number of other, similar large deals that are currently pending in courts. 

It is a given that once the Finance Bill is notified, these deals will also come under the purview of the retrospective tax amendment that Finance Minister Pranab Mukherjee introduced in the Finance Bill. Here are 5 large transactions that face capital gains. 

GE-GENPACT

American conglomerate General Electric (GE) sold a majority stake in Genpact, India’s largest business process outsourcing company, in 2004. The buyers were US-based private equity companies, General Atlantic and Oak Hill Partners. They paid $500 million for a 60 per cent stake in the Indian company. The transaction was completed overseas, and may have been taxed in the US. The matter is pending before the Delhi High Court.

MITSUI CO

The Japanese company had sold 51 per cent  interest in mining company Sesa Goa to UK-based Vedanta group for $981 million in April 2007. The deal was routed through Finsider International, a company incorporated in the UK, which held the Sesa Goa shares. Vedanta bought 100% in Finsider. The dispute is pending before the Goa High Court.

IDEA CELLULAR

The Idea Cellular stake sale by US telecom operator AT&T to the Tata group has similarities to the Vodafone Essar case. The Tata Group, which later exited Idea Cellular, had bought a Mauritian subsidiary of AT&T that held 16.5 per cent in Idea, for $150 million. The case is now in the Supreme Court.

SABMILLER-FOSTER

The world’s second-largest brewer, SABMiller, had acquired 100 per cent stake in Foster’s India, the Indian arm of Foster’s Australia, in 2006. The matter is pending before a Pune Court. In a separate case, Foster’s Australia had approached India’s Authority for Advance Ruling (AAR), on the question of whether sale of brand and patent attracts tax in India. AAR answered in the affirmative.

SANOFI AVENTIS-SHANTA BIOTECH

French drugmaker Sanofi Aventis had bought majority stake in Indian vaccine company Shantha Biotech in 2009 for around $770 million. The deal was through an SPV created by Merieux Alliance that held 90% in the Indian company. The tax department says Sanofi is liable to pay withholding tax on the gains made by Merieux. The matter is pending before the Hyderabad  High Court.

The I-T department, which has been waiting for the high court decision on the Vodafone case, is yet to quantify the tax demand in most of these cases.