SABMiller may avoid tax on Fosters India acquisition

SABMiller may avoid tax on Foster's India acquisition

Vodafone's tax victory in India is a promising sign for SABMiller, which faces a similar dispute over its acquisition of Foster's Group's operations in the country.

Late last week, India's Supreme Court ruled that UK-based Vodafone does not have to pay tax to Indian authorities following its deal to buy the India-based mobile business of Hutchison Whampoa Ltd for US$11bn in 2007. The ruling may set a precedent for similar cases in India and, if so, this could play out nicely for SABMiller.

The UK-listed brewer faces a tax charge over its US$120m acquisition of Foster's Group's Indian operations in 2006. However, like Vodafone, SABMiller has argued that it is not liable to pay tax on the deal in India, because both companies involved in the deal were headquartered overseas.

Last year, the country's tax authorities slapped a US$42m fine on the Foster's India deal, but SABMiller has appealed the decision. Foster's, as the seller, had agreed to be liable for the tax. However, SABMiller's takeover of Foster's Group in December means that it is now the sole defendant in the case.   

More broadly, the Vodafone ruling has sparked talk of a turnaround for India's troubled relationship with foreign investors.

Even before the ruling, management consultancy A T Kearney forecast that India will become the second most trusted destination for foreign direct investment in 2012. On the consultancy's foreign investment confidence index, India is set to overtake the US to sit behind China, which has been number one for the past two years. In 2010, India was fifth on the same index. 

That said, drinks companies would be sensible to remain wary. India has obvious potential as a market, but there is not the rapid sense of progress that is present in China. A quagmire of regulation makes India a complicated place to do business, for domestic companies as well as overseas ones. Corruption, meanwhile, is an unchartered elephant.

Several firms may see Vodafone as a promising sign, but it's a tentative step. If India agrees a free trade deal with the European Union in the first quarter of 2012, as hoped, then perhaps we can talk more confidently about the country's improving business climate.