Quite recently, Vodafone (NASDAQ: VOD) placed a lawsuit against the Indian Taxman and has emerged victorious. It’s interesting to note that no matter what the tax campaigners or the taxman say about the amount due, the sum to be paid by big companies does not always tally. The Vodafone (NASDAQ: VOD) vs the Indian taxman case was related to the complexities of Transfer Pricing.

In this specific case, the Tax department sent Vodafone (NASDAQ: VOD) a Rs 3200 crore tax bill, underestimating the shares that Vodafone (NASDAQ: VOD) delivered to its parent company. The Tax department said that this miscalculation of price was in fact an undercover loan that the company had taken to transfer pricing provisions. Vodafone (NASDAQ: VOD) argued that since there is no income involved, there should be no tax.

Whether Vodafone (NASDAQ: VOD) manipulated the transfer rules is beside the point, it is more important to see if the transfer rules should have applied. If Vodafone (NASDAQ: VOD) sold something within the company, then the asking price for the parent company should be the same as the asking price from companies not related to Vodafone (NASDAQ: VOD). This is the only manner in which income as well as the cost can be measured precisely and generated profits are accurate. Hence, the due taxes are paid based on the tax jurisdiction of the particular area.

According to the court’s decision, not tax needs to be paid by the Vodafone (NASDAQ: VOD) branch in Pune if no income has generated.

When Vodafone (NASDAQ: VOD) bought Hutchison-Essar Business in India, they were evaded from paying taxes after a court ruling stated that Hutchison-Essar is non-Indian company that just owned business in India. This case went all the way up to the Supreme Court but got rejected each time.

Another case that took place in UK, where Vodafone (NASDAQ: VOD) was accused of avoiding up to £6 billion in tax. Vodafone (NASDAQ: VOD) generated huge profits from its German franchises. This income was kept in Luxembourg where Germany was getting its share of taxes. The lawsuit demanded that Vodafone should pay tax to the UK taxman as well.

During the courts proceedings, the CFC rules and their applicability to companies within EU was brought into focus. Based on these rules, Vodafone (NASDAQ: VOD) got away and no taxes were paid to the UK taxman on the profits generated in Germany.

However, in the end Vodafone (NASDAQ: VOD) transferred some of their profits to UK and ended up paying a much less amount of £1.25 billion in tax.

Vodafone has been quite lucky with their tax payments in the past and has succeeded in tax evasion in most of lawsuits filed against the company. Hence, it can be concluded that taxman demands of tax payments may not always be accurate and companies can avoid paying absurd amount of taxes on their generated profits. The law also protects such revenue giants through several business and entrepreneurial decrees in place.

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