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Case Analysis of Vodafone- "Retrospective taxation case"

Vodafone's experience in India has been a case study help in retrospective tax legislation changes. The Supreme Court's judgement in this case, followed by the PCA's decision in the Cairn UK case after the Vodafone case, amounts to a substantial loss for the government, given the government's reserve is based on tax collection. Today, tax evasion is a widespread occurrence. Tax evasion is referred to as "legitimate tax planning." Only after this case were severe rules enacted to prevent non-resident corporations from evading taxes through indirect transfers. While it is true that flexible tax policies are required to attract foreign investment, India does not need to go to great lengths to do so. Furthermore, in order to assist the government, the country's tax laws must be stable, and robust tax regulations must be created to cover these sorts of transactions. This case provides an opportunity to learn about indirect asset transfers, capital gains taxation, retrospective tax law modifications, and the country's tax laws.

Vodafone paid $11 billion in May 2007 for a 67 percent interest in Hutchison Whampoa. This includes Hutchison's mobile phone business as well as other Indian businesses. The Indian government issued a claim for Rs 7,990 crore in capital gains and withholding tax from Vodafone in September of that year, claiming that before making a payment to Hutchison, the company should have deducted the tax at source.

In the Bombay High Court, Vodafone contested the demand notice, but the court decided in favour of the Income Tax Department. Following that, Vodafone appealed the High Court decision to the Supreme Court, which decided in 2012 that Vodafone Group's interpretation of the Income Tax Act of 1961 was accurate and that the share purchase was tax-free.

In the same year, the then-Finance Minister, the late Pranab Mukherjee, proposed a change to the Finance Act, allowing the Income Tax Department to tax such transactions retroactively, despite the Supreme Court's judgement. Parliament enacted the Act that year, and Vodafone was responsible for paying the taxes. By that time, the case had earned the moniker of the "retrospective taxation case."

SWOT analysis of Vodafone

Strength-

  • Massive market base- the company is known for its huge distribution and wide network coverage. India is known as the second largest subscriber of the company. It has been seen that the company works in more than 25 countries worldwide.
  • Massive generation of revenue- the revenue generated by the company according to the 2016 report is near about 87.3 billion dollars. As a result of which it ranks in the 104thposition in term of sales figure.

Weaknesses-

  • Lowering of the subscriber base- The subscriber base of the company has lowered down in the recent years. This assignment help proves to be a major issue for the company.
  • Valuation of brand dropping down- The main reason of the dropping down of the brand valuation is the lowering of the subscriber base.

Opportunities-

  • Rural markets- In case of India if the highest subscriber base comes from this country, then targeting the rural market is important. But the company mostly operates in the urban areas, this might in future be a reason for their loosing of a potential customer base.
  • Developing markets- Apart from the emerging markets in the rural areas provides benefits, but other markets in countries like Africa can also prove to be useful for the company. Thus, the company should not only shift their focus towards rural markets but also emphasize on the markets around the globe.

Threats-

  • Competition- The competition that Vodafone encounters everywhere it goes is a big challenge. So, if it comes to the United States, it will be up against Verizon Wireless and AT&T. In India, there are two major telecom companies: Airtel and Reliance. The telecom industry is seeing intense competition, which is wreaking havoc for Vodafone, which was attempting to differentiate its services by charging a premium price.
  • Low margins — Vodafone's distinctiveness worked at first, but the rivalry has been so severe in the last 3-4 years that the whole telecom market is now functioning on a penetrative pricing mechanism. Competition is usually beneficial to customers, but too much competition is detrimental to businesses assignment help. As a result, profit margins have been gradually declining in comparison to revenues generated.

Vodafone PESTLE Analysis

Political Factors:

In Spain and Italy, Vodafone has experienced increased competition over the years. During the second half of last year, the firm was also under pressure in South Africa. Vodafone Qatar was sold to Qatar Foundation in 2018 as part of a joint venture between Vodafone and Qatar Foundation, which currently owns the company. As a result of the transaction, the company's business deteriorated.

Economic Factors:

Vodafone has established its strategy and plans so that it may achieve higher returns on invested capital in Europe. The company's secondary objective is to change their cost base by utilizing new digital technology. The third objective is to deleverage their balance sheet in order to accomplish their target of moving to the lower end of the 2.5x-3.0x range in the future years.

Social Factors:

Changes in an economy's sociocultural elements can have a significant influence on sales and profitability, particularly in certain regions. Consumer preferences and lifestyle changes have a direct influence on the financial viability of a company. Consumption-driven growth in internet demand has allowed a rise in demand for fast internet services throughout the world. The increase in internet demand has benefited multinational telecom firms such as Vodafone.

Technological Factors:

Through a renewed focus on operational excellence and a more consistent commercial performance throughout the whole Group, Vodafone has set ambitious transformational goals. With 22 million active users, the firm has become Europe's top TV and content distribution network in order to increase consumer loyalty and engagement.

Legal Factors:

Following the merger of Vodafone and Idea, the firm was subjected to judicial examination over problems of rising debt demand. Hutchinson was purchased by Vodafone in 2007. The Indian Income Levy Department levied a heavy tax of $2.5 billion against the firm for the aforementioned purchase.

Environmental Factors:

Vodafone has chosen to focus on transitioning to renewable energy sources for efficient supply in order to decrease their carbon impact. They've also set a goal to decrease network waste, which will help them speed their business's growth and raise customer demand for data.

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