Vodafone agrees to pay tax on Essar stake buy: Sources

Telecom major Vodafone has agreed to pay tax on Essar stake buy in India unit, reports CNBC-TV18 quoting sources.

The current stand of the global telecom giant is a departure from its earlier position. Vodafone had exuded confidence that there was no tax payable on its deal for buying majority stake of Hutchison in Indian telecom firm Hutchison-Essar for over USD 11 billion in 2007.

Terming the USD 2.6 billion tax liability on the company as "inequitable", UK-based Vodafone had questioned the Indian authorities for not raising the tax claim on the party (Hutchison) which made profit by selling its stake.

"It (the deal) is not governed by Indian tax rules and consequence of that is that there is no tax that is payable...second, we would observe the party that made the profit was not us and therefore, the party that should be paying the tax is not us," Vodafone Group Chief Financial Officer Andy Halford earlier told reports.

Vodafone also said that under existing Indian laws it was not required to withhold tax on the deal because the transaction took place in the Cayman Islands and both the buyer and seller were foreign.

Vodafone has also withdrawn its application against Essar at Authority for Advanced Ruling (ARR). Sources say Vodafone has agreed to pay tax of about 21% on the Essar stake buy. 

Vodafone has invested over USD 20 billion since the time it entered India.

(With inputs from agencies)