and a few months later appealed to the Supreme Court.
In both the Vodafone and the Sanofi cases, their respective arms with tax domicile outside India purchased Indian assets from holding companies situated outside India and claimed the transactions were not liable to capital gains tax in India. Sanofi acquired 80% of Shantha Biotech from France’s ShanH, which in turn was owned by other French companies, Merieux Alliance and Groupe Industriel Marcel Dassault.
The tax department claims there is a taxable capital gains of Rs 26,000 crore from the Sanofi deal. While the AAR said the deal was a tax avoidance scheme, the high court said the capital gains was taxable in France under a double tax avoidance agreement and not in India.
The HC also rejected the claim that the Sanofi deal was a tax avoidance strategy. In its defence, Sanofi referred to the 2012 January Supreme Court decision setting aside the tax demand raised on Vodafone’s purchase of Hutch Essar through a Dutch arm from CGP Investments of Cayman Islands for $ 11 billion.
After the apex court ruling, the finance ministry retrospectively amended the law to strengthen provisions meant to tax offshore deals with underlying Indian assets and revived its demand to Vodafone.
Netherlands has a bilateral investment protection agreement with India, under which the telecom giant has now sought international arbitration on the dispute.
India, however, claims the treaty does not cover tax matters and has extended another opportunity for conciliation with Vodafone after resolving a related transfer pricing issue by a tax tribunal. The Cabinet will take a call on the conciliation process after the tribunal settles the transfer pricing case.