Written By admin. On Jul 02. In Industry Bytes

Vodafone may have to shell out withholding tax of up to Rs 3,700 crore during the current financial year on its $3.8 billion deal involving the purchase of shares from Mauritius-based Essar Com Ltd and Essar Communication Ltd. Central Board of Direct Taxes (CBDT) chairman Prakash Chandra said on Friday that Euro Pacific Security Ltd, a wholly owned subsidiary of Vodafone, has withdrawn its application from Authority of Advance Ruling where it had disputed the withholding tax demand invoking immunity under the Double Taxation Avoidance Agreement with Mauritius. Vodafone’s subsidiary had purchased 22% stake held by Essar’s Mauritius arm in the Vodafone Essar. According to CBDT, it should have deducted 20% withholding tax in addition to surcharge before making any payment.

“Tax liability will be around Rs 3,500 to Rs 3,700 crore, including surcharge,” Chandra said, hoping that Vodafone will pay the withholding tax now. He said the development will have tax implications on similar cross border M&As.