1. Visual Identity Guidelines for PPT Presentation C h a l l e n g e U s

2. All rights reserved All rights reserved | Preliminary & Tentative | 2 VODAFONE – THE FACTS AND HIGH COURT RULING Hutch Telecommunication International Ltd (“HTIL”) Vodafone CGP Investments Limited (“CGP”) Hutchison Essar Limited (“HEL”) India 12 intermediate holding companies Mauritius / India Netherlands Cayman Islands Share Purchase Agreement (“SPA”) for shares of CGP 100% Direct and indirect shareholding in HEL - 52% Other Indian entities Indirect shareholding in HEL – 15% Direct and indirect shareholding of 52% + Options over the indirect shareholding of 15% of Other Indian entities in HEL = ‘Economic interest’ of 67 percent (approx) in HEL transferred to Vodafone Decision of the Bombay High Court (“HC”)  Essence of the transaction was a change in the ‘controlling interest’ of HEL, which constituted a source of income in India  Transaction had significant nexus with India; hence withholding tax provisions applicable  Several other rights transferred besides the CGP share - the consideration should be allocated over such rights also

3. All rights reserved All rights reserved | Preliminary & Tentative | 3 VODAFONE – THE FACTS (CONT) The consideration of USD 11.08 billion paid by Vodafone was for the following –  52 percent direct and indirect equity shareholding in HEL  Control premium  Use of rights of the Hutch brand in India  A non-compete agreement with the Hutch group  Value of non-voting, non-convertible preference shares  Value of loan obligations  Entitlements to further acquire 15 percent indirect interest in HEL Question before the Supreme Court of India (“SC”) – Whether capital gains arise from the sale by a non-resident of the share capital of CGP, a foreign entity, which held underlying Indian assets?

4. All rights reserved All rights reserved | Preliminary & Tentative | 4 Vodafone  In the absence of fraud, India to respect corporate identity and corporate veil cannot be lifted (unless the law is specifically provides so)  Regulatory provisions mandate investment in telecom sector only through a corporate structure; it could not be disregarded by lifting of corporate veil Revenue  Existing provisions to be construed ‘purposively’  The transaction was an artificial tax avoidance scheme SC  Separate legal existence – corporate structures ordinarily to be respected  Reasonable business purpose test - holding structures to be ignored, if indirect transfer results from abuse of organization form / legal form  Concept of ‘participation in investment’ relevant, other considerations to be borne in mind to determine abuseother considerations  The onus to identify and establish abuse lies on Revenue  International holding company structures set up for commercial reasons  Difference between having power and persuasive position on the subsidiary HOLDING STRUCTURES

5. All rights reserved All rights reserved | Preliminary & Tentative | 5 Vodafone  Language of section 9 does not create ‘look through’ provisions  Words ‘indirectly’ and ‘through’ appearing in section 9 do not make transaction taxable, unless capital asset situated in India (in this case the Cayman Islands Company’s share was situated outside India)  In a transaction between two foreign entities – source of income cannot be traced back to India to establish nexus with India Revenue  Section 9 to be construed in a wide manner; intent of the transaction to be seen  Consideration paid for property rights in India which created a source of income from India  Situs of CGP share can only be in India as the entire business purpose of holding that share was to assume control in Indian telecom operations, the same was managed through board of directors controlled by HTIL SCOPE OF SECTION 9 AND DETERMINATION OF SITUS OF SHARES

6. All rights reserved All rights reserved | Preliminary & Tentative | 6 SC  Section 9(1) a legal fiction, and cannot be expanded by giving purposive interpretation  It does not envisage “look through” provisions  Scope of income arising from transfer of capital assets which is dependent on three elements - transfer, existence of capital asset and situation of such asset in India  The word “indirectly” used goes only with ‘income’; not “capital asset”  Specific provision in the Direct Taxes Code Bill, 2010 (“DTC”) deals with taxation of indirect transfers  Source of income is where the transaction of sale takes place; and not where the value lies  A share is situated where the company is registered and the register of members is kept; and not where the ‘underlying assets’ are situated SCOPE OF SECTION 9 AND DETERMINATION OF SITUS OF SHARES (CONT)

7. All rights reserved All rights reserved | Preliminary & Tentative | 7 Vodafone  Hutch holding structure existed since 1994  Complex corporate structure evolved for good commercial reasons, recognized by Indian tax and regulatory laws Revenue  CGP share was interposed at the last minute to avoid tax in India SC  Principle of internal correlation: Every multinational company reconfigures itself into a corporate group by dividing itself into a number of subsidiaries which are financially interlinked  Court(s) have evolved doctrines like piercing the corporate veil, substance over form etc; however, genuine tax planning cannot be ruled against by the Court(s)  CGP was an investment vehicle; sale of shares of CGP was more efficient way of ensuring a smooth transition of business. It cannot, therefore, be said that CGP had no business or commercial purpose ROLE OF CGP IN THE TRANSACTION

8. All rights reserved All rights reserved | Preliminary & Tentative | 8 Vodafone  No transfer of controlling interest independent from transfer of shares  Controlling interest cannot be taxed in the absence of express legislation Revenue  The entire purpose of transferring the CGP share was to transfer control in HEL  Controlling interest is a property right – the transfer of which is taxable in India SC  The Vodafone transaction held to be an ‘investment to participate’ instead of a tax avoidance transaction; difference between power and persuasive position  Reason for execution of the SPA was to provide exit to Hutch  Controlling interest in the management of the company - not an identifiable or distinct capital asset independent of the holding of shares  Tax is to be levied on the transaction ie share sale and not on its effect  Method or basis of valuation of shares cannot be a basis of taxation CONTROLLING INTEREST AND OTHER RIGHTS AND ENTITLEMENTS

9. All rights reserved All rights reserved | Preliminary & Tentative | 9 SC  Bargain was for sale of CGP share and not an itemized sale transaction  Options entitling Vodafone to 15 percent indirect holding in HEL do not constitute a property right or equity interest until exercised CONTROLLING INTEREST AND OTHER RIGHTS AND ENTITLEMENTS (CONT)

10. All rights reserved All rights reserved | Preliminary & Tentative | 10 Vodafone  Indian Parliament has legislated on form; the Court(s) cannot get into the substance of the transaction  Concept of substance over form has been rejected by SC in case of Azadi Bachao Andolan (“ABA”)  Tax recognizes form and decoupling as a part of bonafide transnational structuring Revenue  Real intention should be looked upon  Reliance to be placed on SC decision in the case of McDowell – ABA incorrectly decided, should be reconsidered SC  There is no conflict between McDowell and ABA and the latter did not require any reconsideration  Court(s) not compelled to look at a document or transaction in isolation and the legal nature of the transaction should be discerned by looking at the entire transaction as a whole and not by adopting a dissecting approach – the ‘look at’ approach – guidance taken from English cases AZADI BACHAO ANDOLAN REGARDING TAX AVOIDANCE

11. All rights reserved All rights reserved | Preliminary & Tentative | 11 Vodafone  Reliance placed on ABA – Tax Residency Certificate (“TRC”) conclusive evidence even for investors who invest through the Mauritius route Revenue  Enquire to check whether capital gains beneficially and legally belong to a Mauritian entity or to a third party ie whether the Mauritian company is a mere façade SC  Per Justice Radhakrishnan–  Valid TRC, in the absence of a Limitation Of Benefits (“LOB”) clause, conclusive as regards the residence and beneficial interest / ownership  However, Revenue not precluded from denying the treaty benefits, if established that the Mauritius company had no commercial substance and had been interposed solely with a view to avoid tax or for tax evasion VALIDITY OF MAURITIUS TAX RESIDENCY CERTIFICATE

12. All rights reserved All rights reserved | Preliminary & Tentative | 12 Vodafone  Section 195, referring to withholding from payments to non-residents, cannot be enforced on a non-resident not having any taxable presence in India  The words ’any person’ in section 195 should be used sensibly, else the enforcement of the provision would be impossible  In the absence of income chargeable to tax, tax not required to be withheld Revenue  The term ‘person’ widely defined to include a foreign company  Section 195 applicable when the taxpayer has some of nexus with India, irrespective of deductor being a non-resident  Once the nexus is shown to exist, the provisions would operate SC  Applicability of section 195 depends on the “tax presence” of the non-resident payer in India - tax presence must be construed in the context of the transaction under question  Per Justice Radhakrishnan – section 195 does not apply to non resident payors; does not have extra territorial applicability WITHHOLDING TAX

13. All rights reserved All rights reserved | Preliminary & Tentative | 13 SC  Investment by a group company in an Indian company does not create a tax presence of all companies of that group in India  In the absence of chargeability to tax, nothing could be recovered from the deemed agent under domestic tax laws  Merely treatment as an agent, would not lead to an automatic liability to pay taxes on behalf of the non-resident WITHHOLDING TAX (CONT)

14. All rights reserved All rights reserved | Preliminary & Tentative | 14 SC observations  Tax avoidance is a problem faced by almost all countries following civil and common law systems and all share the common broad aim to combat it  Vodafone case an eye-opener of what India lacks in regulatory laws and what measures India has to take to meet the various unprecedented situations without sacrificing national interest  The DTC envisages to create an economically efficient and effective direct tax system by proposing a GAAR  Certainty is integral to rule of law - the basic foundation of any fiscal system  Tax policy certainty is crucial for taxpayers (including foreign investors) to make rational economic choices in the most efficient manner NEED FOR LEGISLATION AND CERTAINTY

15. All rights reserved All rights reserved | Preliminary & Tentative | 15 Binding nature of the concurring but separate judgment of Justice Radhakrishnan Substance vs form - will TRC remain a conclusive proof of residency? Future for Mauritius investors Applicability of withholding tax provisions in future M&A/Private Equity deals Applicability of this ruling to other similar transactions Relevant guidance by the SC on the need, scope and application of GAAR Provisions of the DTC relating to indirect transfers – a game changer? What to expect in the Finance Bill, 2012? BMR ANALYSIS

16. Visual Identity Guidelines for PPT Presentation C h a l l e n g e U s

17. All rights reserved All rights reserved | Preliminary & Tentative | 17 Considerations to be borne in mind to determine if there is an abuse –  (i) the concept of ‘participation in investment’  (ii) the duration of time during which the holding structure exists  (iii) the period of business operations in India  (iv) the generation of taxable revenues in India,  (v) the timing of the exit  (vi) the continuity of business on such exit These considerations relate to an investment to participate in India which is conceptually different from a pre-ordained transaction which is created for a tax avoidance purpose OTHER CONSIDERATIONS