Vodafone hit with £1.6bn tax demand from India

INDIAN authorities have slapped Vodafone with a £1.6 billion tax bill in the latest round of a three-year financial struggle over the British firm's acquisition of Indian telecommunications operator Hutchison Essar.

"The tax demand is to be paid within 30 days of the receipt of the notice of demand," India's central board of taxes said. Vodafone said it "strongly disagrees" with the calculation, and would take all actions necessary to defend its stance.

The tax demand - equivalent to 112.18 billion rupees - was at the top end of analysts' expectations. The case is being closely watched by foreign investors around the world, as it could have far-reaching implications for how they invest in India.

The dispute dates back to 2007, when Vodafone paid $11.2bn (7.1bn) to purchase the 67 per cent stake in the business that it didn't already own from Hong Kong's Hutchison Whampoa.

"Vodafone continues to believe it is not liable for any tax on this transaction involving the transfer of a company outside India," the company said in a statement. "Vodafone was the acquirer and not the vendor and has made no gain on the transaction."

It is the first formal notice received by Vodafone since the Bombay High Court ruled last month that the deal should be subject to capital gains tax.