The Supreme Court ruling on the Vodafone tax case, which involves a tax demand of $2 billion, will have a major impact on tax regimes of various countries seeking to introduce rules covering cross-border acquisitions involving entities in their respective jurisdictions, according to senior tax officials.

A senior income tax official with the international tax division of the income tax (I-T) department told ET that several developed countries are in talks with the department, considering that many countries and provinces are involved in a single transaction like the one featuring Vodafone.

The Vodafone tax case involves entities based in Britain, the Netherlands, Cayman Islands, Mauritius, India and Hong Kong. The Supreme Court ruling on this case is expected within a fortnight.

In the Vodafone case, the transaction was between Vodafone and Hong Kong-based Hutchison International, which sold its shares in the Indian company through a holding company based in an offshore destination. The I-T department has been of the view that it was immaterial whether the transaction took place outside India.

According to the I-T department, what counts for the purpose of taxation was whether capital gains were generated in India. Therefore, tax has to be paid in India if the overseas sale of shares had resulted in a change of ownership of the Indian company, it has argued.

The tax notice issued to Vodafone in 2007 has prompted many tax regimes to adopt a similar approach even before the Supreme Court ruling. Already two governments - China and Uganda - have adopted the same approach, introducing laws to ensure that such transactions are brought under its tax net. Others countries are awaiting the SC ruling to fine-tune their laws to cover such deals involving companies in their jurisdiction.

In fact, a law is already in vogue in the US to cover such transactions if immovable properties are involved. Australia too has similar laws.

What is common in this is that most countries have taken the stance that they retain the right to levy tax if the income is generated in their country, irrespective of the location where the sale of shares took place.

The Chinese tax department, in its first such case, had recovered nearly $24 million from a multinational investment company which sold its Hong Kongbased unit HoldCo to a US company. HoldCo owned a controlling stake in a Chinese company in Jiangdu, near Shanghai.

Similarly, tax authorities in Uganda raised a tax demand of $360 million as capital gains tax (at the rate of 30%) from the Cayman Islands-registered Heritage Oil, which sold its stake in Ugandan oilfields to UK's Tullow Oil in January 2010 for $1.35 billion.

Despite Heritage's claim that the tax was not payable in Uganda, authorities in the African country said that the transfer of interests in the oilfields gives rise to income sourced in Uganda and, therefore, tax is payable in Uganda. Heritage has filed for arbitration. (Economic Times)