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Vodafone Case: Bharat Sarkar Ko Gussa Kyon Aata Hai


Everything you wanted to ask about the Vodafone tax-case – and afraid to know.

In each market Vodafone bring 'cutting edge' advertising and the latest in financial 'engineering'  |  Image source & courtesy - thisislondon.co.uk  |  Click for image.

In each market Vodafone bring ‘cutting edge’ advertising and the latest in financial ‘engineering’ | Image source & courtesy – thisislondon.co.uk | Click for image.

Behind the mask

The Vodafone tax case opens many questions – legal issues apart. Starting with the nature of the corporation itself.

Vodafone is a recent multinational to come out of Britain. Vodafone has no technology, no manufacturing or innovation to its credit – except ‘marketing’. It has become the world’s largest mobile phone operator by financial ‘engineering’ and endless credit from British banks.

Buying the best legal services, at prices that even Governments will balk at, Vodafone has used all legal options available. In India the Vodafone roster included well-connected, legal eagles like Harish Salve (related to NKP Salve) and Abhishek Manu Singhvi (related to LM Singhvi).

With British multinationals slowly dropping out of the skies, it has become essential for HM’s Government to ‘create’ new multinationals.

Vodafone is one such entity.

Enter the mobile phone

The numbers of the Vodafone case  |  Image source & courtesy - hindustantimes.com  |  Click for image.

The numbers of the Vodafone case | Image source & courtesy – hindustantimes.com | Click for image.

Before we go to the next leg of the story, it may be useful to recap the development of mobile telephony technology. Invented by Motorola, USA, initially mobile phone technology was expensive and slow to catch on. Till late 80’s it was easy to tap into mobile phone conversations with very little equipment and technology.

What changed in the ’80s was the GSM platform.

GSM platform was built by an European consortium which decided to define the next level in mobile telephony. Based on ‘open’ digital platform, GSM allowed multiple vendors to create technology using common interfaces. In the earlier Advanced Mobile Phone System AMPS & Digital-AMPs (DAMPS) analogue systems, roaming, data usage, were all major issues.

GSM settled that. This allowed operators to mix-and-match equipment based on market conditions and innovations. GSM created competition at two levels. At one level it was GSM vs AMPS/DAMPS and later GSM vs CDMA. At another level it was competition between various GSM players – Ericsson AB; Nokia, Alcatel, Motorola, Lucent – and now Chinese players like Huawei, etc. Most importantly it created global platform which allowed global roaming.

One number, nearly anywhere in the world – which Motorola tried to do alone with its failed Iridium project.

The Indian tax-payer will pay for the privilege of doing business with a British multinational  |  Graphic source & courtesy - epaper.timesofindia.com  |  Click for image

The Indian tax-payer will pay for the privilege of doing business with a British multinational | Graphic source & courtesy – epaper.timesofindia.com | Click for image

Although Europeans had a head-start, not a single British company attained any significant position in the GSM business. Sweden boasted of the leader Ericsson LM. Germany had Siemens (now sold to Nokia, Finland and Benq, Taiwan); France had Alcatel.

Even lowly Finland had Nokia. Motorola, US remained a strong player in GSM till recently. Canada had Lucent and RIM. Korea, Taiwan came out trumps in the terminal market with brands like Samsung, LG, Benq, HTC, Acer, etc. China, a late entrant, came up with a Huawei,  Haier, Lenovo, China Mobile, ZTE, TCL.

But no British name in a US$200 billion industry (airtime, equipment, terminals).

In the last few years, ARM Holdings a British chip designer, with little more US$500 billion in revenues and operating margins of US$200 billion has acquired a significant position in chip design.  Operating on a licensing business model, ARM Holdings has no manufacturing operations of its own. Other manufacturers license chip designs from ARM Holdings.

Voda porridge

Vodafone has been there - and done that. Ably supported by the British govt. | graphic source & courtesy - hindustantimes.com | Click for image

Vodafone has been there – and done that. Ably supported by the British govt. | graphic source & courtesy – hindustantimes.com | Click for image

Is this the first time that Vodafone done this tax-jugglery ?

Backroom deals that can only be guessed at, allowed a British company to morph into the world’s largest operator.

Paying top-dollar prices, buying into troubled and indebted operators in France, Germany, Italy, Japan, Portugal, Spain, US, Vodafone consolidated all these operators under one brand.

After spending billions, over a period of less than 10 years, Vodafone was supported by the British Government with tax breaks – some of which have raised many eyebrows in Britain itself.

Urban myth?

Back home an unspecified claim by UK tax authorities running into billions (departmental leaks suggest GBP6.0 billion) was settled for GBP1.2 billion.

Britain’s most senior taxman has admitted making “governance errors” when agreeing multibillion-pound settlements with large companies.

Dave Hartnett, HMRC‘s head of tax, has conceded that Revenue officials did not follow correct procedures in two high-profile cases that could have left taxpayers millions of pounds out of pocket.

The errors are understood to relate to claims that Vodafone faced a £6bn tax bill – a figure HMRC has described as “urban myth” – but paid only £1.25bn to settle the dispute. There are also suggestions US investment bank Goldman Sachs avoided £10.8m of tax payments last year.

Hartnett told a Treasury select committee that HMRC settled a tax dispute without informing all members of its oversight board.

The high risk corporate board’s supervision is meant to ensure tax officials do not agree settlements in private deals.Hartnett refused to explain exactly what went wrong, how much tax may have been lost or confirm which companies may have escaped their full tax commitments.”Yet Mr Hartnett has refused even to indicate whether interest was paid by Vodafone on the tax due, despite confirming that it is an offence not to pay interest on tax owing.”Vodafone’s settlement, which led to widespread protests, saw HMRC collect £1.25bn to draw a line under a long-running investigation into its 2000 takeover of German rival Mannesmann. Leaks from the department suggested HMRC had wanted to collect up to £6bn from Vodafone. (via HMRC admits corporate tax deal errors | Business | The Guardian).

A few crores on a lawyer .. and a few crores here and there are still a lot less than 11,200 cr tax demand.  |  Graphic source & courtesy - http://forbesindia.com  |  Click for image.

A few crores on a lawyer – and a few crores here and there are still a lot less than 11,200 cr tax demand. | Graphic source & courtesy – http://forbesindia.com | Click for image.

Of course, the British tax authorities are enlightened bureaucrats – not corrupt.

But Indian tax authorities pursuing this case to extract bribes from Vodafone – and not on the ‘merits’ of the case.

Referring to the misuse of corporate structure, the White Paper by the Indian Government on Black Money said, “The Vodafone tax case provides an instance of the misuse of corporate structure for avoiding the payment of taxes.”

In this case, it said, the Hutchison Group had made investments in India from 1992 to 2006 through a number of subsidiaries having ‘separate corporate personality’ but which were essentially post box companies based in the Cayman Islands, British Virgin Islands, and Mauritius.

The Hutchison Group sold its entire business operation in India in February 2007 to the Vodafone Group for a total consideration of USD 11.2 billion and the same was effected through transfer of a solitary share of a Cayman Islands company.

When the tax authorities requested the accounts of the said company, it said, “The answer given was that as per Cayman Islands law, the company was not required to prepare its accounts.”

With increasing realisation about the harmful effect of ownership being concealed behind complicated corporate ownership structure, such structure is coming under scrutiny.

“…it is expected that efforts taken by India in this regard as also global pressure will provide a check on these tendencies,” it said. (via Pranab Mukherjee tables white paper on black money in LS – India – DNA).



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  1. vv
    June 6, 2012 at 8:11 pm

    “Even lowly Finland had Nokia.”

    I am not sure what you mean by the word “lowly” there. You mean the latitude? Or you think Finland is “low” on some economic indicator? Or does Finland rate “low” in your perception of some value?

    By the way, you are going a little far with your infatuation with everything british here. Many Indian companies take advantage of the taxation treaties too.

  2. June 9, 2012 at 7:20 am

    Finland is “low” on some economic indicator

    Lowly as in an economic power. 25 years ago, Finland was most famous as the home of Santa Claus. With some interesting companies that have made a splash in the last 25 years Finland has reinvented itself.

    you are going a little far with your infatuation with everything british here. Many Indian companies take advantage of the taxation treaties too.

    Dont you think paying zero tax in any country, is un-acceptable in modern economies. Vodafone has paid zero tax. I think we should go get some tax from the seller-buyer, as the business, customers, and assets are all Indian.

    Zero-tax by Indian companies in India. The most famous case is of course Reliance. And the most famous ‘prosecutor’ against Reliance was Arun Shourie. In hindsight, Arun Shourie felt that Dhirubhai’s creative interpretations were finally all for good.

    I will second that.

    I see no reason why Indians must fund British companies that bring ‘cutting-edge’ advertising and financial ‘engineering’ to the table. Even in ‘cutting-edge’ advertising and financial ‘engineering’, Airtel did one better than that.

    So, how did India benefit – while Vodafone has benefited from India.

  3. Mehfuz
    July 21, 2012 at 11:20 pm

    Any one HELP ME !

    Amar Vodafone sms korlam ACT 4 TO 144 time 09:33am date19/07/2012 amke dilo 40MB.
    Ki Sundor use korchilam.
    Amar phon number Account Balans 54:00 time 06:00pm date19/07/2012 chilo.

    Ami vablam amr phone to Balance 54:00 Ache to ami akta phon kori.
    Tarpore Ami Akta phon kortechi borche apnar phone Account Balance is 00:05.
    Ami time 09:00pm date19/07/2012.

    Amar phone dial korl *111# =2=6=2= dekalo 3.46MB Beche ache time 08:07pm date 20/07/2012.

    Ami phon korlam vodafone 198 deklam speciale offer sona che keno & why why?
    Tahole ki taka kete naye Avabe customer ke boka banay?
    Time 10:00am date 20/07/2012 Ami phon korlam Nodel office ph 9830410285.
    Amake bolo 24 hours maxi mum wait korte.
    Amke phon korlo ph:+913371711000 32 hours and 42 mint pore time06:42pm date21/07/2012 tokhon ami RAMZANER EFTER korchi seta Nodel office khub valo vabe jane.
    Amake bolo apnar Balances doa jabena.
    Ami ki Balances Recharge korte parbo?
    Ami ki korbo Avabe chole to number PORT korte hobe?
    Last te ki amake PORT korbo?

    Any one HELP ME !

  4. Mehfuz
    July 21, 2012 at 11:22 pm

    Any one help me ?

    Amar Vodafone sms korlam ACT 4 TO 144 time 09:33am date19/07/2012 amke dilo 40MB.
    Ki Sundor use korchilam.
    Amar phon number Account Balans 54:00 time 06:00pm date19/07/2012 chilo.

    Ami vablam amr phone to Balance 54:00 Ache to ami akta phon kori.
    Tarpore Ami Akta phon kortechi borche apnar phone Account Balance is 00:05.
    Ami time 09:00pm date19/07/2012.

    Amar phone dial korl *111# =2=6=2= dekalo 3.46MB Beche ache time 08:07pm date 20/07/2012.

    Ami phon korlam vodafone 198 deklam speciale offer sona che keno & why why?
    Tahole ki taka kete naye Avabe customer ke boka banay?
    Time 10:00am date 20/07/2012 Ami phon korlam Nodel office ph 9830410285.
    Amake bolo 24 hours maxi mum wait korte.
    Amke phon korlo ph:+913371711000 32 hours and 42 mint pore time06:42pm date21/07/2012 tokhon ami RAMZANER EFTER korchi seta Nodel office khub valo vabe jane.
    Amake bolo apnar Balances doa jabena.
    Ami ki Balances Recharge korte parbo?
    Ami ki korbo Avabe chole to number PORT korte hobe?
    Last te ki amake PORT korbo?

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