Vodafone: Indian Supreme Court grants $2.5 billion reprieve

India's Supreme Court granted Vodafone a $2.5 billion reprieve Friday, in a ruling that will ensure that the mergers & acquisitions departments at local banks and law offices remain open for business, NDTV reports.

“We are a committed long-term investor in India and we have made clear all along that we have faith in the Indian judicial system, Vittorio Colao, CEO of Vodafone, said in an emailed statement. “We welcome the Supreme Court’s decision, which underpins our confidence in India. We will continue to grow our Indian business – including making significant investments in rural areas and in 3G network coverage – for the benefit of Indian consumers.”

The Indian government had been trying to hold Vodafone accountable for taxes related to its 2007 acquisition of a 67 percent stake in Hutchison Essar from the company's Hong Kong parent, for which Vodafone paid some $11.5 billion. The government's argument ran that the assets in question are located in India, regardless of the fact that the company was registered in an offshore tax haven. However, the Supreme Court upheld Vodafone's contention that the deal was made outside of India by two non-Indian companies, so it was not liable for any associated taxes in India.

Had the ruling gone in favor of the government, it would likely have put a serious damper on mergers and acquisitions in India. But there was a certain logic to the argument: Virtually any company operating in India might be registered in Mauritius or a similar tax haven — even some that never did any business at all overseas.