Income Tax Department Wants Hong Kong Included in Tax Pact with China

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Aug. 10 – India’s Income Tax Department wants its tax agreement with China to include Hong Kong SAR, to pursue a pending tax plea on Hutchison Telecommunications International (HTIL) when it sold its Indian conglomerate Hutchison-Essar to Vodafone for  US$11.1 billion in 2007.

The government department is demanding US$1.7 billion tax on the deal. “HTIL so far has been able to get out of the tax net on grounds that the sale is not taxable in India. Now that we are allowed to sign taxation treaty with non-sovereign entities, we are pursuing a tax pact with China to cover Hong Kong too,” a senior finance ministry official, who did not wish to be named, told The Economic Times.

Hutchinson-Essar had been 52 percent owned by Hong Kong-based HTIL. The company then sold its stake to Vodafone via the Cayman Island-based CGP Investments Holdings.

Indian tax authorities will need the cooperation of their counterparts in Hong Kong if they are to pursue the tax case.

The Indian Supreme Court refused to meddle in the tax plea and said that the question of jurisdiction of the authorities to assess the tax related to contracts between foreign entities could be raised before the tax authorities, reports The Economic Times.

A finance official said: “There is no capital gains tax in Hong Kong and HTIL has managed to evade taxes in India as well. We’re sure with the signing of a taxation treaty with Hong Kong, we’ll be able to put pressure on Hutch to pay the due amount.”

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