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Supercharging Salesforce @ Vodafone

Calling in more sales at vodafone.

This was the subject of our sales effectiveness Breakfast Briefing. Our guest speaker was Nicola McLaughlin who was the Enterprise Digital Sales Enablement Manager for Vodafone Group Services.

Operating in 32 countries, Vodafone is one of the world’s best-known mobile phone brands. Although focused predominantly on the consumer market, at least 30% of the company’s business now flows from the B2B sector. However, as a consequence of growth by acquisition there has been a  proliferation of stand-alone technologies– CRM being a typical case in point…

So a decision was taken to standardise on salesforce.com (a programme called ‘One SalesForce [1SF]). But, as Nicola quickly recognised, implementing 1SF is no guarantee of improved sales performance. If people didn’t embrace and actively champion the new system, it would not guarantee a return on the significant investment made. In this case study Nicola explains how Vodafone were able to deliver these impressive results:

• A 187% increase in productivity compared to the baseline.
• Over 200 extra hours of call time with customers and prospects.
• A 60% decrease in closed/lost opportunities.

This inspired a cross-industry discussion on how to improve the effectiveness of the sales process. To read the full report of these insights please click the button below.

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Real-world Salesforce Success Stories of Companies Leveraging Salesforce

September 11, 2024

Regardless of business size, Salesforce benefits numerous industries and helps them drive sales, boost engagement, and enhance ROI. According to Baklinko, Salesforce is the leading CRM platform that delivers its services to more than 150,000 businesses globally.

The ultimate goal of any business is to turn its potential customers into loyal customers and work to satisfy their needs and requirements. Salesforce is the ideal platform because of its comprehensive suite of features and functionalities.

Ksolves is one of the leading companies that excels at delivering incredible Salesforce services to its customers. In this blog, we will explore some of the success stories of companies using  Salesforce for their business.

Some Real-world Salesforce Success Stories

There are a large number of industries that have leveraged Salesforce services and have boosted their business operations. Some real-world examples of Salesforce implementations are mentioned below:

1. Non-Profit Organizations

By utilizing Salesforce services, non-profit organizations can automate their fundraising. Also, they can build better relationships with people and can easily reach them. With the help of a Salesforce consultant, nonprofit organizations can help you implement the solutions and make the most of them. 

Case study : Salesforce Case Study for NGO: Donation in Animal Welfare Organization

The client is a devoted animal welfare group that is committed to helping pet owners who are struggling financially. The aim was to provide necessary medical treatment to homeless animals. Their primary goal is to enhance the welfare of these creatures by making sure they get the support and care they need.

One major challenge was to attract donations from the public, which was then utilized to maintain their operations and initiatives. Also, they had limited visibility in the public domain, making it difficult to raise awareness about their cause. This challenge extended to securing sponsors for their animal welfare organization. These combined issues hinder the organization’s ability to fulfill its mission and expand its efforts in animal welfare.

Ksolves has provided a comprehensive solution to the organization that has offered various advantages: 

• Convenient Payment Gateway: Implemented a smooth payment gateway interface that works with credit cards, PayPal, and Stripe to make donations simple and safe.
• Content Management and Awareness: Enhanced the organization’s website with a content management system (CMS) that supports dynamic and engaging articles. It results in increased visibility and drives donations. 
• Salesforce Integration: Integrated Salesforce CRM to ensure real-time synchronization of donor data and donation information. This integration includes custom APIs and automated data synchronization processes to keep the website updated with the latest information from Salesforce.
• Sponsorship Management: Developed a collaborative roadmap for sponsorships, utilizing Salesforce’s partner management features. This roadmap facilitates interactions between multiple sponsors and the organization. It provides tracking and reporting tools to manage sponsorship engagements effectively. 
• Contact Us Form: Created an advanced “Contact Us” form with automated workflow capabilities. This form processes online queries and inquiries efficiently, incorporating validation rules, automated email responses, and integration with Salesforce to track and manage customer interactions.

2. Financial Services

Finance institutions need to focus on exceptional customer experience to stay ahead of the competition. Financial procedures and workflows can be synchronized with multipurpose CRMs, which can also be personalized to meet specific alignment requirements. 

Case study – Salesforce Case Study for Finance: SharePoint and Outlook Integration

The client demands a streamlined solution for data integration and cost-effective file management. The aim is to leverage the data storage and file management capabilities of SharePoint while improving their Salesforce workflow.

Challenges:

The client was facing an issue in integration between SharePoint with Salesforce to leverage the data storing & file management capabilities of SharePoint. The client wanted to manage the data storage costing issues they might face while uploading files to Salesforce.

Salesforce Services Provided:

• Utilized Salesforce’s REST API and Content Version Object for seamless file transfer and synchronization between Salesforce and SharePoint, improving document management.
• With the help of REST API, we’ve facilitated seamless folder creation and immediate file uploads from Salesforce to SharePoint. This is achieved using Salesforce’s Content Version Object and External Data Source integration. The process is automated when users upload files within Salesforce, ensuring efficient data transfer.
• Established a personalized platform within the tool for storing managed files and folders sourced from Salesforce. Also developed a custom app and granted specified access to the application within the tool’s framework.
• Integrated Salesforce with Outlook/Gmail through Salesforce Einstein Activity Capture. This allows users to track their activities, schedule meetings, and receive notifications directly within Salesforce, ensuring seamless connectivity with their email platforms.

3. E-commerce

Over the years E-commerce has presented tremendous growth resulting in increased online shopping. Retail economics has emerged as a new concern as companies and customers go online. It might be difficult to establish efficient client contact, but sales CRM software makes it easier for merchants and e-commerce companies to engage and communicate with customers.

Case Study – E-Commerce: Implemented SFCC For Crypto Payment Integration

The client is an E-Commerce industry in search of a cognitive and intuitive solution for the successful integration of cryptocurrency payments into an SFCC E-Commerce website. They also require a platform that makes it simple for them to keep an eye on order management and payment processes within SFCC. Their primary goal was to use well-known cryptocurrencies like Ethereum and Bitcoin to make the appropriate purchases.

Challenges: 

The major challenge for the client was to customize the checkout page UI and allow users to choose the right cryptocurrency. Also, it was difficult for them to capture and display the payment transactions in the attributes and payment detail sections. The client needed a plugin for Cryptocurrency payment integration. Finding and managing payment failures, producing order data, and guaranteeing the failed order for incomplete transactions constituted additional circumstances. 

Secure Checkout Integration

• Checkout Session API : Created an API and verification key to ensure secure and seamless transactions for registered payment links.
• Custom Object for Checkout Page : Developed a custom object to enable client-specific customization of the checkout page UI, allowing for tailored user experiences.
• Payment Methods and Processors : Set up various payment methods and processors within the Business Manager to support multiple payment gateways.
• Order Details Page Customization : Customized the order details page to present transaction information in an intuitive and user-friendly manner.

Cryptocurrency Features

• Custom Object for Cryptocurrency UI : Implemented a custom object to provide advanced customization for cryptocurrency transaction features on the checkout page.
• Custom Attribute for Cryptocurrency Payments : Added a custom attribute to the cryptocurrency payment method, enabling the payment tab in the Business Manager to display detailed transaction data, such as transaction ID, amount, and status.

Payment Monitoring and Management

• Failed Payments Management : Deployed robust tools to monitor and handle failed payments, automatically linking them to the associated orders with clear data for resolution.
• Incomplete Transactions Handling : Established similar processes for managing incomplete transactions, ensuring that all transaction-related data is effectively captured and processed.

4. Healthcare

Collaboration between patients and medical staff is essential to ensure high-quality patient care. CRM in the medical industry can help to retain patient data. Additionally, communications can be streamlined, organized, and synchronized, while data is being analyzed during the patient care procedure and business activities are being automated.

Case study: Enhancing Sales Prospecting With LinkedIn Sales Navigator Integration

Driven by a dedication to enhancing healthcare delivery, our client, who worked in the Health Care Solutions industry, was a top supplier of cutting-edge medical equipment and healthcare services. They started their growth path by realizing how important it was to target particular healthcare facilities and grow their customer base. They employed technology to accomplish this, fusing Salesforce, a popular customer relationship management (CRM) tool, with LinkedIn Sales Navigator.

The client faced challenges in the complex hierarchy of the organization. This made it challenging to identify and provide unparalleled solutions, which resulted in missed opportunities. The sales team struggled with data input and manual research, which resulted in inefficiencies and wasted valuable time that could have been used more effectively.

• Lead Recommendation Engine : Integrated LinkedIn’s lead recommendation engine with Salesforce to deliver relevant and current lead suggestions specifically tailored to healthcare targets. This integration utilizes LinkedIn’s algorithms to provide high-quality lead recommendations based on industry-specific criteria.

Real-Time Data Synchronization

LinkedIn Sales Navigator Integration : Enabled real-time synchronization of LinkedIn Sales Navigator data with Salesforce, ensuring that information on leads and interactions is continuously updated within the CRM. This integration includes:

• Lead Data Sync : Automatic updates of lead profiles, including contact information and engagement history.
• Interaction Tracking : Real-time syncing of interactions such as messages, notes, and activities, maintaining an accurate and comprehensive lead history.

Personalized Communication Capabilities

InMail Messaging from Salesforce : Facilitated the capability to send personalized InMail messages directly from Salesforce. This feature streamlines communication with healthcare decision-makers by:

• Message Templates : Providing customizable InMail templates for personalized outreach.
• Tracking and Analytics : Monitoring InMail delivery, opens, and responses within Salesforce to optimize engagement strategies.

Enhanced Lead Insights

LinkedIn Profile Insights : Made in-depth insights from LinkedIn profiles and activities accessible within Salesforce records. This includes:

• Profile Data Integration : Importing LinkedIn profile details, such as job titles, professional achievements, and company information.
• Activity Tracking : Displaying LinkedIn activities, such as posts and interactions, to provide valuable context for tailoring sales approaches and crafting personalized messages.

5. Agriculture

Salesforce can provide incredible solutions for agriculture as well. The platform is dedicated to making customer relationships better. Additionally, it streamlines the operations and efficiency of the agriculture domain. 

Case Study: Salesforce Mobile App for Seamless Agri-Data Management

The client provides field services and engages with customers in the agriculture sector. Their business strategy calls for regular trips to a variety of venues, including fields where in-person contacts are crucial. Field agents communicate with farmers during these encounters to obtain information, take orders, and handle problems. However, a major obstacle was the erratic internet availability in these isolated and rural places. It was almost difficult to access and manage critical client data in real time as a result. As a result, the client required a mobile application that would let their field service representatives handle support inquiries, access Salesforce data, and perform offline work.

While creating their mobile application, the client encountered several difficulties. Since their field service representatives frequently operated in isolated locations with spotty internet access, they required offline access to vital data. The customer also wanted to build the mobile application using React Native, but they ran into issues getting it to work with their current Salesforce organization. To ensure maximum user reach and accessibility, the client also required the program to function flawlessly on both Android and iOS devices.

Using the Salesforce SDK, REST API, React Native, and Android Studio, the Ksolves team developed a comprehensive solution to handle the client’s concerns. The following were the main actions done:

• Salesforce SDK Utilization : Leveraged the Salesforce SDK to create a custom mobile application, enabling seamless integration with Salesforce services. This approach provided access to Salesforce features and data directly from the mobile application.
• Android Studio Integration : Utilized Android Studio to run and test the application on an Android emulator. This facilitated the development and debugging process by simulating various device environments and ensuring compatibility with Android devices.

Connected App for Seamless Communication

Configured a connected app to establish a secure connection between the client’s Salesforce organization and the mobile application. This integration ensured smooth and efficient communication between the Salesforce backend and the mobile app by:

• OAuth Authentication : Implementing OAuth protocols for secure authentication and authorization.
• API Integration : Enabling data exchange and interaction between Salesforce and the mobile application through REST and SOAP APIs.

Offline Data Storage with Salesforce Soup

• Salesforce Soup Implementation : Used Salesforce Soup to facilitate offline data storage within the mobile application. This feature allowed users to:
• Local Data Storage : Store data locally on mobile devices even without an internet connection, ensuring uninterrupted access to critical information.
• Automatic Data Sync : Automatically synchronize locally saved data with the Salesforce database once the user reconnects to the internet, ensuring data consistency and up-to-date records across platforms.

Various real examples of Salesforce success show the immaculate advantages of the CRM platform . Non-profit organizations, finance, healthcare, e-commerce, agriculture, and many more industries have experienced immense growth in their business.

The Ksolves team believes in the incredible power of Salesforce. The industry explores its features and functionalities at its peak when collaborating with a reliable partner like Ksolves.

If you want to utilize Salesforce implementation services to streamline your organization but are unsure where to begin, check out our Salesforce packages or get in touch with us. Our experienced team will provide you with practical guidance on how to replicate the success of the previously listed Salesforce adopters.

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Case Study: 10 World-Famous CRM Implementation Failures

• Category : Case Studies
• Last updated on June 17, 2024
• By Ginika Anajulu
• No Comments
• Posted by Ginika Anajulu

CRM implementation failure rates are alarmingly high, nearing 90%, primarily due to companies misjudging their readiness for transition. One of the most notable CRM implementation failures was experienced by Hershey.

Hershey’s implementation plan, initially set for 48 months, was overly ambitious. Despite believing they were ready for the transition, they were caught off guard by the challenges, resulting in severe operational disruptions and a significant drop in their stock price.

To avoid such pitfalls, companies must thoroughly research and evaluate the best ways to integrate a CRM system with their existing customer interactions and workflows, ensuring alignment with their growth objectives.

This article discussed the world’s famous CRM implementation failure and preventive measures.

Reasons Why Most CRM Implementations Fail

• Focusing more on internal priorities than on customers’ needs is disastrous. Once you ignore customers’ needs, they will ignore your business, and failure will present itself.
• Lack of management from the business executives. Any business where the leaders are not fully engaged in CRM implementation would face failure.
• Rushing to implement CRM to enjoy credits offered by the CRM vendor leads to failure.
• Assumption kills; when you assume that a CRM software will perform a specific task without learning the features of the CRM can take that business to grave.
• Implementation missteps brought about by improperly staffed teams. The users of the CRM should be well-equipped with the CRM implementation processes.
• Complicated CRM software can be complicated for the CRM team to use. Ease-to-use CRM is the best to enable them easily understand the implementation processes.

Case Studies of CRM Implementation Failures

1. hershey's crm implementation failure.

The Hershey Company, commonly known as Hershey’s, is one of the largest chocolate manufacturers in the world.

In 2020, Hershey achieved its 100% certified and sustainable cocoa commitment in 2011. Despite being the world’s best chocolate manufacturer, Hershey encountered CRM failure in 1999.

• Their system testing failed.
• Its stock and quarterly profits dropped by 8% and 19%, respectively.
• Hershey’s could not process over $100 million worth of Kiss and Jolly Rancher orders, even though it had most of the inventory in stock.

Root Cause Of Hershey's CRM Implementation Failure

In 1996, Hershey decided to upgrade its legacy IT systems to an integrated ERP environment, incorporating SAP’s R/3 ERP software, Manugistics’ supply chain management (SCM) software, and Siebel’s customer relationship management (CRM) software.

Although the recommended implementation time for these platforms was 48 months, Hershey’s executives insisted on a 30-month turnaround to complete the rollout before Y2K. Additionally, they attempted to deploy all three technologies simultaneously, which was not ideal given the company’s operational readiness.

Compounding the issue, Hershey received the bulk of their holiday orders during one of their busiest sales and distribution periods. The new systems were not prepared to handle the surge, causing conflicts between various departments. The severity of the situation led to significant operational disruptions and a drastic plummet in their stock price.

Preventive Techniques

• Do not try to rush ERP system implementation to meet unrealistic timelines.
• Do not try to deploy a complex technology at once. Focusing on one centralized solution prevents minor problems from slipping through the cracks.
• Test the business processes and systems using a methodology to simulate realistic operating scenarios.
• Ensure you plan carefully and thoroughly when implementing complex technologies.
• Always Try to reduce incoming orders during the cutover period.

By adhering to these preventive measures, your company will mitigate failure risks and position itself to drive ERP success.

2. Vodafone's CRM Implementation failure

Vodafone is widely known to be one of the largest wireless phone companies in the world. They develop various products and services to help build future digital societies.

Despite their efforts to deliver a better customer experience, the following CRM failures caught them unawares:

• Error in customer billing data and price plans.
• Failure in customer support response.
• Massive Financial Losses
• Vodafone breached Ofcom’s billing rules.

Root Cause Of Vodafone's CRM Implementation Failure

In 2013, Vodafone experienced a significant financial loss due to a failed ERP implementation, costing the company millions.

The failure led to Vodafone breaching Ofcom’s billing rules. Firstly, their system failed to credit the accounts of customers who had paid for mobile credit top-ups, and they were slow to address the issue. Secondly, Vodafone failed to inform customers of their right to escalate unresolved complaints to a third-party resolution scheme after two months.

The new system’s failures caused a surge in customer complaints, prompting a formal investigation by Ofcom. Following the investigation, Ofcom fined Vodafone £4.6 million: £3.7 million for taking money from pay-as-you-go customers without providing the corresponding service, and £925,000 for mishandling customer complaints.

• Ensure you understand your company’s needs and how best to connect a CRM system with customers and workflows. CRM failure often occurs when a company invests in software that streamlines emails and text messages, but its customers prefer to communicate with them on the phone or in person.
• Quality data is necessary to realize the benefits of a CRM system. So, eliminate duplicates and correct inaccurate entries when combining databases or data sources.
• Equip your team with the knowledge and resources they need to respond to customers’ complaints correctly. You can still offer refresher courses for ongoing support even after formal training. You can also take advantage of training programs and learning opportunities, such as knowledge databases, offered directly by the CRM vendor. In the case of Vodafone, their representatives needed to be equipped with the resources and knowledge they needed to support their customers.
• Before starting the migration, consider using CRM software that integrates with your team’s other systems, like email, document sharing, marketing automation software, sales software, etc.

3. Blackberry's CRM Implementation Failure

Blackberry has been the most magnificent smartphone worldwide since the early 2000s. In the UK, It held over 55% of the smartphone market share in 2009, but its RIM disaster pushed it down to less than 4%. Blackberry has fallen victim to a botched CRM implementation, often with the following disastrous results:

• issues with its email services
• Messaging delay
• Browsing delay
• Poor customer support

Root Cause Of Blackberry's CRM Implementation Failure

“The service outage was caused by a core switch failure within RIM’s infrastructure; the system has a backup switch, but it failed to function as previously tested; we apologize for any inconvenience and are working to restore the normal service”.

– The company said in a statement.

The beginning of the end of Blackberry met them in 2010. BlackBerry has faded even further into the abyss to the extent that countless numbers of BlackBerry users have left Blackberry ever since then.

At that time, Most Blackberry users encountered slow or collapsed email services, browsing delays, etc, while BlackBerry Messenger also broke down.

Blackberry and their decision maker RIM-(Research in Motion), delayed explaining to their customers the cause of the service outage and when it would be resolved. They left their customers in the dark for some time. They neglected to use CRM software to send concise messages to their customers; instead, they relied on Facebook.

• Ensure you conduct quality checks on your service to know if it’s still in line with the current quality trends.
• Design a backup plan for your service and always test it. Blackberry designed a failover to backup switch, but the failover did not work as planned. So, you need to continuously evolve your backup strategy so that it responds whenever its needs arise.
• Being open and transparent in dialogue with your customers is the primary factor that helps in trouble times like this. It makes them believe in whatever you are saying.
• Do not delay giving them information about the problem and when it will be solved.

4. Cigna's CRM Implementation Failure

Cigna is a global health service company with the mission of helping people improve their health. Cigna has over 70,000 employees serving over 150 million customers throughout the world.

Due to their strong desire to deliver a better customer experience, they undertook a $ 1 billion initiative to overhaul their IT infrastructure and implement a CRM system in 2002. The CRM implementation did not work as expected, and the below failures sprang up immediately;

• $445 million net loss in 2002
• A drop in membership from 13.3 million to 12.5 million.
• Failure to access information about their coverage.
• Glitches in customer service

Root Cause Of Cigna's CRM Implementation Failure

Cigna embarked on a $1 billion initiative to move 3.5 million customers to a new system. The goal was to enhance productivity and reduce costs by replacing disparate legacy systems with a unified infrastructure.

Despite close monitoring by Chief Information Officer Andrae Anania, the project encountered significant issues. These challenges led to a massive revenue loss exceeding $400 million and caused widespread glitches in customer service, leaving millions of customers dissatisfied.

As a result, Cigna lost 6% of its healthcare members in 2002 alone.

• Take the time to follow best practices to reach CRM success carefully.
• Don’t expect the users to adapt to a new system in a short period quickly; take time to train and prepare them for the upcoming operational shifts.
• Hands-on training is essential for users to understand how to use a particular feature.

5. General Motors's CRM Implementation Failure

General Motors Acceptance Corp Commercial Mortgage(GMACCM) is the champion in business real-estate loans with a mortgage portfolio totaling more than $151 billion. In 1999, GMACCM began its own CRM initiative to increase automation, efficiency, and the amount of borrower information available to call center staff.

Unfortunately, the below problem surfaced;

• loan officers lost their business
• The rivals lured away their customers.
• 99% of its loan consumers zeroed out to a customer service operator.
• Multiple complaints from customers marred the company.

Root Cause Of General Motors's CRM Implementation Failure

The lack of user-centred design methodology is why GMACCM’s CRM implementations failed. They implemented a CRM solution without clearly defining the intended user’s needs. The CRM solution automated voice response technology as the first point of contact for consumers making loan inquiries.

They later discovered that 99% of its loan consumers were zeroing out to a customer service operator. Many complaints were coming from different customers, and loans lost a lot in their business.

• Ensure you always stick to customers care representatives to learn your customers’ challenges. GMACC should have continued using customer service agents to handle queries instead.
• The users of the system should be identified. User analysis, task analysis, and testing should have been employed.
• Consider conducting a simple user test as one of the CRM implementation strategies to know the user’s preferences. Had they conducted user tests, they would have discovered that many users would bypass their state-of-the-art system instead of talking to a live person.

6. BMC's CRM Implementation Failure

BMC Software, Inc. is one of the world’s largest developers and vendors of independent systems software. This $1.5 billion software company undertook an initiative for the implementation of CRM. They failed two times and succeeded on the third attempt. At the first attempt;

• They experienced very low utilization, with only 30 to 50% of users adopting it.
• They experienced the problem of inaccurate data.

They encountered the following problems on the second attempt;

• Failure to capture wide usage.
• The mistaken impression was that all the users needed to get on boarder more features and better data.

Root Cause Of BMC's CRM Implementation Failure

BMC was interested in the processes that they would perform faster without considering the needs of their customers. Methods and systems were implemented without involving the key executives. They assume that IT managers could handle CRM initiatives; that software would sell itself to employees and automatically generate the required organizational changes.

• If you rush into CRM implementation, you’ll run out of it. So, do not rush.
• Take your time to calculate your customer strategy, which helps employees understand where they are going.
• Equip your employees with the tools needed to succeed.
• Ensure you manage change effectively by showing support teams how to achieve their aim through new processes.

7. British Airways's CRM Implementation Failure

British Airways are well known for quality in-flight services and customer service. Their flight service covers more than 170 destinations worldwide whilst supporting the UK economy by providing vital channels for trade and investment. British Airways have a long history of CRM failure.

• The data structure wasn’t designed for analytical purposes, so it was difficult for the analytical team to understand the system.
• Creating queries was slow and complicated, even for the most straightforward generation.
• A lot of time is consumed in training the SAS users.
• The analytical team’s confidence was undermined due to many questions regarding data quality.

Root Cause Of British Airway's CRM Implementation Failure

British Airways undertook an initiative in 2001 intending to simplify the decision-making processes. The initiative was to consolidate information from the organization into its Integrated Commercial Warehouse. They adopted Ocean Wave, also known as Customer Data Warehouse, as the CRM. The analytical finds it challenging to understand because it wasn’t designed for analytical purposes. They experienced failures, and the CRM implementation took them two years to complete.

• Take your time to assess the company’s needs because most CRM failures have more to do with how the company views itself than the system’s ability.
• Companies should concentrate on CRMs that are Simple and training-rich; so team members can use CRM easily and quickly when tasks are automated.

8. Owen Corning's CRM Implementation failure

Owen Corning is the world’s largest manufacturer of fiberglass composites. They claimed to be the global leader in residential, commercial, and industrial building materials, including insulation and roofing products. But the following CRM failures slapped them in 1992.

• They were unable to boost the customer service of their current customers.
• Unable to create fresh interactions with potential clients.
• They experienced the draining of a large chunk of the budget.

Root Cause Of Owens Corning's CRM Implementation Failure

The primary reason why Owens Corning failed in its CRM implementation was that it neglected customers’ preferences. They decided to adopt a CRM tool in 1992 due to a lack of consistency in marketing across different departments.

The CRM team found it challenging to integrate the new system because the company was busy updating its internal processes using an extensive ERP system.

This took away the attention of the representatives from the CRM integration, and customer service was not taken care of.

Prevention Techniques

• Owen Corning should have taken the customers’ needs as the main priority and worked backwards from that point.

9. Dow Chemical's CRM Implementation Failure

Dow Chemical is among the three largest chemical producers in the world. With a presence in about 160 countries, it employs approximately 37,800 people worldwide.

In a bid to update customer support, they undertook a CRM initiative but experienced failures in the process:

• Inadequate definition of business processes.
• Failure to support users

Root Cause Of Dow Chemical's CRM Implementation Failure

Dow Chemical rolled out an extensive, overly complex CRM in 1992. This overly-complex CRM initiative failed due to an inadequate definition of the business processes. It was unable to provide remote support for the users. Later, an attempt at implementing a smaller, more localized CRM initiative was successful. It allowed the company to address more specific issues and scale down the number of projects allowed.

They should have clearly defined the overall business processes for better CRM implementation.

10. CarsDirect's CRM Implementation Failure

CarsDirect.com is a leader in the online automotive space. They have been in the business of helping people buy cars for over 12 years now. They suffered the following failures after implementing a customer tracking tool;

• $50 million in operational losses
• Failure to achieve a return on investments
• Budget overruns
• Customer confusion, frustration, and dissatisfaction.
• High post-implementation running costs

To prevent this kind of failure, the best option is to use a scalable and robust CRM tools that accomodates the growth of the company. For instance, Salesforce and Hubspot .

Conclusions

CRM implementation is a complex process that requires careful planning and execution. Unfortunately, the failure rate of CRM implementation is high, with some studies suggesting it is as high as 90%.

This article explores some of the most famous CRM implementation failures, including those experienced by Hershey, Vodafone, Blackberry, Cigna, General Motors, British Airways, Owen Corning, Dow Chemical, and CarsDirect. The root causes of these failures are analyzed, and preventive measures are presented to help companies mitigate failure risks and position themselves for successful CRM implementation.

Choosing easy-to-use software and taking time to understand the best practices are crucial to a successful CRM implementation.

Ginika Anajulu

Ginika is a passionate content writer who is interested in SEO Digital Marketing. When she is not working, she dives into the world of cooking.

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Vodafone Aligns Support Service Model to ITIL 4 Case Study

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September 20, 2021  |

  12  min read

In April 2019, Vodafone Business approached Axelos to explore a potential alignment between an already-initiated Vodafone Business Customer Operations (VBCO) service modelling project and ITIL ® 4. This service modelling project was initiated to address a variety of issues as, over time, the service model for different Vodafone Business products had become misaligned and a number of variations existed. This paper explains more about what Vodafone Business did and has achieved using the ITIL continual improvement model steps.

Introduction

In April 2019, Vodafone Business approached Axelos to explore a potential alignment between an already-initiated Vodafone Business Customer Operations (VBCO) service modelling project and ITIL ® 4.

This service modelling project was initiated to address a variety of issues as, over time, the service model for different Vodafone Business products had become misaligned and a number of variations existed. The introduction of a minimum value service (MVS) model was the driver for standardization. A cross-functional approach to the development of the MVS was also used to facilitate smoother interdepartmental working and better customer outcomes. Prior to the Minimum Viable Service, VBCO was using a proprietary, product-agnostic framework to build standardised, ITIL-aligned service models for new product development and deal-led service designs. It described the service packages offered to customers. The service modelling project team reviewed the scope of the existing framework and, based on the issues experienced with its use, decided to improve the existing service model to include more detail around the processes and standards used to deliver services to the customer. Before the collaboration with Axelos, this improvement was using ITIL v3 concepts.

This paper explains more about what Vodafone Business did and has achieved using the ITIL continual improvement model steps, shown in Figure 1.1, as section headings. This includes how the new MVS approach naturally aligned to the key concepts of the newly released ITIL 4 service management best practice framework and the benefits that this has brought.

What was the vision?

The Vodafone Business vision was to create and adopt an MVS that represents a product-agnostic standard service model. It would describe the minimum acceptable level of service they provide for both the customer and Vodafone Business. The MVS would form the basis for all new product development and customer deals. It would also enable a consistent customer experience for global customers on the Vodafone network, as well as partners and third parties across products. The MVS would act as the benchmark service level for internal Vodafone teams. For example:

• The Product Service Design team would use the MVS to build repeatable and reuseable standard service models for all new products.
• The Customer Deal Governance team would understand what the standard operating model is by referencing the MVS and could consequently respond quickly and accurately to new bids.
• The Service Transition team would have an operating benchmark to work to when onboarding new customers and delivering products into the live service.
• The Service Operation team would have a standard level of service to aspire to, as well as confidence that all products and services operate to a standard operating model.

All of this contributes towards better Vodafone Business products and services and, importantly, more consistent levels of service and support to customers.

Where were they?

Vodafone Business had a recognized service modelling framework, but it was not commonly used across the service delivery community.

Although the framework was detailed in terms of what the customer would receive in terms of a service package, it did not go far enough in outlining how that would be delivered.

This created the following issues:

• inconsistent service designs for new products
• slower bid responses for customer deals
• discrepancies between what was standard and non-standard service
• difficulties in transitioning new services
• problems managing services in-life.

The existing service modelling framework had a good degree of detail and was centrally maintained, however operational content such as processes, procedures, and standards were disparately stored, making them difficult to find and consume.

Where did they want to be?

Vodafone Business’s ambitions for the MVS mapped to much of the ITIL 4 best practice guidance, including around value and value co-creation, service providers, service consumers, products and services, service relationships, and outcomes, costs, and risks. All of these are key concepts of service management in ITIL 4. The various Vodafone Business statements for ‘where do we want to be?’ can be articulated in relation to these.

Value and value co-creation:

• Value co-creation will be enabled by the MVS. Value is partially created by building the MVS, thanks to the design-based collaboration between teams. However, full value co-creation is only achieved when Vodafone Business teams are all consistently using it and external customers are benefitting from the standard service models.
• The MVS will be used as an operating benchmark by various functional areas for different requirements.
• Value co-creation is supported by a continuous feedback loop that ensures that the MVS is refined, useable, and relevant.

Service providers:

• Service providers, such as VBCO, and other stakeholders develop practices and standards that collectively form the MVS.
• The operational Vodafone Business teams deploy the practices and standards outlined within the MVS, which becomes the service Vodafone Business offers to the customer.
• The practices and standards created by the service providers, in the form of the MVS, are contained in a library of Service Design Packages (SDPs).
• The SDPs are published and made available to all operational and functional areas within Vodafone Business.

Service consumers:

• Internal service consumers, such as Service Design and Deal Governance, will use the MVS to create standardised service models.
• Service providers also become service consumers because they use the MVS as their own service benchmark: understanding the level of service they need to continually maintain.
• External service consumers (i.e. customers) benefit from a standard level of service and understand what they are paying for.

Products and services:

• The MVS is applied to all new products and therefore becomes the standard service model.
• The MVS effectively becomes a service offering in its own right, a baseline standard level of service offered to all customers for all products.

Service relationships:

• A service relationship is created between internal Vodafone service providers and service consumers.
• Value is co-created by continually reviewing and refining the MVS through feedback and collaboration between the service providers and service consumers.

Outcomes, costs, and risks:

• Service consumer outcomes are achieved by having an up-to-date, relevant standard service model that can be applied to new product development and customer deals.
• Service provider outcomes are achieved by being able to operate new products and customer deals knowing that a standard service model, aligned to the MVS standards, is being deployed.
• Service design using a service blueprint in the form of the MVS for all new products, reducing time-to-market.
• Deal governance being able to work more quickly, enabling quicker request for proposal (RFP) responses and increasing bid-win ratios.
• Service transition providing quicker service deployment with a reduction in rework
• VBCO having fewer bespoke service models applied to standard products.

How are they getting there?

15 different ITIL v3-aligned processes were identified as the key elements that would form the MVS service offering. An agile project was initiated to create a library of MVS content that represented the current state of the existing service model. Distribution to key stakeholders and users of the content and continual feedback ensured that the new MVS content was developed iteratively.

The ITIL guiding principle ‘start where you are’ was relevant here. VBCO and key stakeholders asked, ‘Is what we have good enough?’ rather than starting from scratch.

Other areas of ITIL 4 alignment through this approach were:

• building an internal service relationship
• the four dimensions of service management.

One of ITIL 4’s key messages is that service relationships are established between two or more organizations to co-create value. This message was shared across various internal agencies and, by working together, the internal agencies listed below co-created value by collaborating and helping build the MVS content, ensuring that it was and is usable and relevant:

• Service design
• Deal governance
• Service transition.

The MVS changes affected different service management areas, as outlined in Table 5.1.

Table 5.1 Using service relationships to co-create value

The ITIL 4 key message of ‘To support the holistic approach to service management, ITIL defines four aspects that collectively are critical to the facilitation of value for customers 5 ’ can also be mapped to Vodafone Business activities, as shown in Table 5.2.

The actions taken

At a high level, in creating the MVS, the VBCO actions were as follows:

• A squad of content creators was formed to collate and document the operational standards.
• The catalogue of services describing what Vodafone Business offers its customers was analysed and used as a reference point throughout the lifecycle of the project.
• The MVS content was collated through subject matter expert engagement and collaboration. This covered processes, policies, service targets, standards, frameworks, tools and systems, and features and user stories.
• The MVS for each capability (practice, in ITIL 4 terminology) was documented into an SDP.

At a more detailed level, the MVS development included many aspects of the ITIL 4 service value system (SVS), as shown in Table 6.1.

Did they get there?

The first phase of creating an MVS library was completed. The 15 capabilities that represent the standard service model are available in a central repository available to Vodafone teams across the business.

Value has been created for internal service consumers from MVS content as follows:

• VBCO: having an operational benchmark they can aspire and work towards
• Service design: using the MVS to create a standard service model for a new product, and just as importantly, knowing what is non-standard
• Deal governance: using the SDP detail for bid responses and knowing what is and is not standard
• Service transition: having a clear view of what standard is and focusing on the more difficult, non-standard elements to transition.

External customers (consumers) will benefit when the MVS is embedded within the organisation and is applied fully to products and services. It is at this point that full value co-creation will be realized.

Vodafone Business’s MVS development journey is still ongoing and the refinement of the model continues. Some of the benefits realized so far include that:

• Service consumers are benefitting from the agreed standard service model.
• Alignment to ITIL 4 best practice validates the approach taken to the MVS development.
• MVS service model content is centrally located and available to all.
• Vodafone Business has broken down silos through collaborative working between operational and functional teams.
• The MVS has demonstrated how ITIL v3 and ITIL 4 guidance can be used together.

How will they keep the momentum going?

The MVS will be embedded into Vodafone BAU practices. A set of workstreams has been initiated to test the MVS and the associated content. These workstreams will ensure that the MVS can be used and the benefits maximized. An operating model has been developed to ensure that the MVS is maintained and governed.

Vodafone will adopt and adapt the ITIL 4 service value chain approach to manage this MVS operating model going forward. Continual feedback on MVS content and how it is used in a practical sense will further test its validity and ensure that it is kept up-to-date and relevant.

• Vodafone aligns support service model to ITIL4

Transforming ways of working to deliver always-on marketing

The challenge

Vodafone knew that to maintain their position as one of Europe’s leading telcos they needed to boost their ability to talk to customers in the right context, through the right channels, at the right time. Their challenge was twofold if they were to realise this ambition – new technical capabilities would need implementing, but arguably still more importantly Vodafone knew that their ways of working and operating model would also have to transform across all 21 of their operating companies globally, all of which worked in different ways.

increase in average revenue per user

saved in commission costs (through call center NBAs etc.)

greater number of propositions now live

increase in response rate to offers using adaptive modelling

greater value creation through NBAs using adaptive models

The approach

Merkle was engaged to deliver Vodafone’s transformation to a state Vodafone termed ‘Always On Marketing’ – looking not simply at technology, but at revolutionising ways of working too.

One of the primary focuses of our target operating model was in defining the organization structure of marketing teams, and how these worked alongside the wider business. By restructuring the teams to become agile and cross-functional rather than siloed, and embedding the right forums for collaboration and governance, we have streamlined decision-making and shifted Vodafone’s culture to be more oriented around the customer.

Vodafone’s OpCos differ significantly in size and culture, and a one-size fits all model was not possible. Merkle initially worked with 4 nominated OpCos (Turkey, Germany, Spain & UK) to build a target operating model collaboratively that could be applied across all OpCos ,  while facilitating communication between markets and allowing them to share learnings and best practice. Our final model combined best-in-class elements that were applicable everywhere, frameworks that allowed markets to shape elements of their own solution within certain parameters, and options for outsourcing of elements to central centers of excellence or third-party managed services.

Such was the success of our four pilot OpCo projects that we were then asked to expand our collaboration to Netherlands, with VodafoneZiggo, where we evolved the model further to bring in the latest agile concepts. We have also gone into Vodafone Greece to help them to stand up their agile squads.

The outcome

The revolutionized operating model that Merkle created for Vodafone has been instrumental in transforming their business. Customers are now receiving a six times greater variety of different propositions, with these still able to be serviced by the same number of Vodafone staff. The impact on the bottom line is evident – Vodafone has seen a 7% boost in average revenue per user, and has reduced commission costs by a fifth. The initiative has delivered a return on investment over one-third higher than before.

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Vodafone and Microsoft to transform the customer experience with generative AI

A 10-year strategic partnership between the firms will support over 300 million consumers in Europe and Africa

Amber Hickman | 16 January 2024

Telecommunications firm Vodafone has formed a 10-year strategic partnership with Microsoft to help it to transform the customer experience using generative artificial intelligence, digital services and the cloud.

Over the next 10 years, Vodafone will invest $1.5 billion in Microsoft’s cloud and customer-focused AI services, including Microsoft Copilot. This will help Vodafone to offer scaled digital platforms to over 300 million businesses, public sector organisations and consumers across Europe and Africa.

“This new generation of AI will unlock massive new opportunities for every organisation and every industry around the world,” said Satya Nadella, chairman and CEO of Microsoft. “We are delighted that together with Vodafone we will apply the latest cloud and AI technology to enhance the customer experience of hundreds of millions of people and businesses across Africa and Europe, build new products and services, and accelerate the company’s transition to the cloud.”

The two firms will work together in five key areas of collaboration. First, they will use Microsoft Azure OpenAI to deliver personalised experiences to Vodafone customer touchpoints and its digital assistant.

Microsoft also plans to invest in Vodafone’s managed internet of things connectivity platform, which connects 175 million devices worldwide and aims to become a separate, standalone business by April 2024.

Furthermore, Vodafone will accelerate its cloud transformation by modernising its data centres on Microsoft Azure. This will improve its responsiveness to customers while simplifying its IT estate. The firm will also work to distribute Microsoft services, including Microsoft Azure, security solutions and modern work tools including Microsoft Teams Phone Mobile. This will help business customers to deploy Microsoft’s services with low adoption and running costs.

Lastly, Microsoft intends to further scale M-Pesa, Vodafone’s Africa-based financial technology platform, by housing it on Azure and enabling the launch of new cloud-native applications. The two firms will also launch a new programme that aims to teach digital literacy skills to 100 million of Vodafone’s consumers and one million small-to-medium sized enterprises.

“Today, Vodafone has made a bold commitment to the digital future of Europe and Africa,” said Margherita Della Valle, CEO of Vodafone Group. “This unique strategic partnership with Microsoft will accelerate the digital transformation of our business customers, particularly small and medium-sized companies, and step up the quality of customer experience for consumers.”

Tags: AI     Azure     communications     News     telecommunications     Vodafone

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Salesforce Case Study: How Cobham Went from Implementation to Innovation

John Lange, Senior Manager, Product Marketing

It’s a far too common tale: sales teams in quickly growing companies are plagued with siloed processes, disparate legacy systems, and reporting inconsistencies. These inefficient workflows and outdated applications can risk a company’s future by restricting visibility into its most important asset: the customer .

Even with the proliferation of cloud-based customer-relationship-management (CRM) solutions, companies often underinvest in the vital tools that will help them run their sales teams and manage accounts.

But when a company does say, “Enough is enough…we need a modern CRM!”, the results can be startlingly impressive. This case study summarizes how Spinnaker Support’s implementation and managed services launched a global company from an outdated sales operation and into the Salesforce ecosystem to enable a customer 360 view.

“Spinnaker Support…We Have a Problem.” 

Cobham Mission Systems (CMS), a global space and defense contractor, needed new sales management infrastructure to keep up with their frantic pace. With legacy systems lacking an enterprise and customer 360 perspective, CMS needed a modern customer-relationship-management (CRM) platform that would scale with their growing business.

They wanted a solution that would bring sales visibility and reporting consistency across their entire organization. The COVID-19 pandemic added urgency as the entire sales team was working remotely. This project needed to get done quickly.

CMS selected Spinnaker Support as the best implementation partner based on its aggressive agile approach and timeline, experienced team, and combined service offering of implementation and long-term support. The project included the standardization of sales processes across business units and geographies to facilitate consolidated pipeline tracking, executive reporting, and sales, inventory and operations planning processes (SIOP).

The Spinnaker Support Solution

Spinnaker Support and CMS established a six-week project timeline to deliver the refined minimum viable product (MVP). This aggressive global rollout required rapid stakeholder alignment, highly engaged business change champions, and a skilled and integrated team. “An amazing amount of experience came together to make it a very easy discovery period,” said Dione Fultz, Business Development & Strategy Operations Lead at CMS.

To meet the short timeframe required to complete the project, Spinnaker Support used an agile software development methodology. The team used project management and ticketing software to manage the sprints and track progress to coordinate the agile framework. The Spinnaker Support team conducted two build sprints, delivered remote global training to change champions and end-users, and deployed the finalized solution.

Quick Results and the Foundation for Success 

The primary objective of the Sales Cloud project was to build a new CRM platform that would scale with CMS’s growing business and to create a foundation for a customer 360 view.

Key outcomes of the implementation project:

• A single data source to analyze global sales activities across the entire company
• New strategic business conversations that were not previously possible
• Clarity of the origination of future revenue, by channel
• Reduction of over 60 hours per month needed to create and manage pipeline reporting
• Lead tracking for multi-year deal cycles up to five years

Day-to-day process improvements: 

• Real-time sales metrics (previously was monthly)
• Standardization of sales vernacular and processes
• Consistent use of data fields to create reliable pipeline reports
• Increased data hygiene and forecasting accuracy
• Consolidation of historical customer data

Finally, Continuous Salesforce Improvement Through Managed Services

CMS realized that, with no in-house Salesforce expertise, they would need ongoing assistance if they wanted to continuously improve their Salesforce environment. They decided to enlist Spinnaker Support’s managed services team for ongoing Salesforce development and management.

Every month, the Spinnaker Support team works with CMS to understand what stakeholders need from Salesforce for continuous improvement. The team then defines the solution architecture, reviews the proposed approach with CMS, and confirms release timing. A few weeks later, Spinnaker Support releases the planned features and enhancements, creating a best-in-class monthly update process.

This proactive approach to long-term support moves the business forward and allows CMS to rapidly adapt to changing business needs and requirements in the aerospace and defense industry.

“Because of the success we’ve experienced with Spinnaker Support, we are looking to move faster with adding new functionality. We have a lot of confidence in achieving our Salesforce goals because of our great relationship with Spinnaker Support,” said Fultz.

Read the entire case study to learn how Spinnaker Support quickly launched Sales Cloud for Cobham Mission Systems and continues to deliver Salesforce improvements on a monthly schedule.

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Vodafone Case Analysis

Introduction

Vodafone’s journey in India has been a significant case in retrospective amendment made to tax laws. The decision made by the Supreme Court in this case and subsequently the decision made by PCA in Cairn UK case following Vodafone case amounts to a huge loss to the government as the reserve of the government depends upon the collection of tax. Tax avoidance has become a common practice today. Tax avoidance is considered as “legitimate tax planning”. Only after this case, strict provisions to govern tax evasion by non-resident companies through indirect transfers were made. Agreeing to the fact that there must be liberal tax policies in order to attract foreign investment, India need not stoop down too low to attract FDI. Moreover, tax laws in the country must be stabilized and strong tax laws must be enacted to cover these types of transactions in order to help the government. This case is a learning experience to know about indirect transfer of assets, taxability of capital gains, retrospective amendments to tax laws and clarity of tax laws in the country. Though various amendments to tax laws have been made, it has been a continuous defeat to the country regarding these offshore transfers.  This is a landmark judgment pronounced by the Supreme Court of India. It was a 3-judge bench decision consisting of Chief justice S.H Kapadia, Swatanter Kumar and K.S. Radha Krishnan. The case was originally dealt by the Bombay HC.

BOMBAY HIGH COURT

Vodafone India Services Pvt. Ltd vs Union Of India, Ministry Of Finance and Anr. EQUIVALENT CITATION: 2009(4) BomCR258, (2008)220CTR(Bom)649

Vodafone International Holdings (VIH), a Dutch Company procured 100% shares in CGP Investments (Holding) Ltd a company situated in Cayman Island, for USD 11.1 billion from Hutchison Telecommunications International Ltd in the year 2007. CGP, through different organizations and actions controlled 67% of Hutchison Essar Limited (HEL), an Indian Company. Vodafone got command over CGP and its downstream the subsidiaries including HEL through the acquisition. It had acquired telecom licenses to give cell communication in various circles in India starting from November 1994. In September 2007, a show-cause notice was given to the Vodafone Company by the Indian Tax Department to clarify the reason for why tax was not retained on instalments made to HTIL in connection to the above said transaction as said transaction of transfer of shares in CGP had an impact of aberrant or indirect transfer of assets in India. 3

Whether the transfer of shares between two foreign companies, resulting in extinguishment of controlling interest in the Indian Company held by a foreign company, amounted to transfer of capital assets in India and whether such transaction is chargeable to tax in India?

Sec 2(14) of Income Tax Act-Capital Asset

Sec 2(24) of Income Tax Act- Definition of Income Sec 5 of Income Tax Act-Scope of total income

Sec 9 of Income Tax Act- Income deemed to accrue or arise in India Sec 45 of Income Tax Act-Capital gains

Sec 191 of Income Tax Act-Direct Payment Sec 195 of Income Tax Act-Other sums

Sec 201 of Income Tax Act-Consequences of failure to deduct or pay

MAINTAINABILITY

The respondent contended that the writ petition is not maintainable because the petitioner had an effective alternative remedy available under Income Tax Act. 4 The petitioner cannot invoke the writ jurisdiction as there is a failure on part of the petitioner as they did not invoke the jurisdiction under tax law. It was held that where a statute creates a right or liability and gives a special remedy when enforced, the remedy provided by that statute only must be availed of. In the present case, the Act provides for a complete machinery to challenge an Order of assessment, therefor the order can only be challenged by the mode prescribed by the Act and not under Article 226 of the Constitution of India.

CONSTITUTIONAL VALIDITY

The respondent contended that the petitioner has not produced the important documents that are essential for determination of tax charges in India and thereby, the petitioner cannot challenge validity of provisions in issue. It was held that even if the burden of proof does not lie on a party, the Court may draw an adverse inference if he withholds important documents in his possession which can throw light on the facts at issue. 5 Therefore, when the Petitioner has challenged the constitutional validity of the Amendment to Sections 191 and 201 of the

I.T. Act by the Finance Act, 2008, then the same must be in context of certain facts pleaded and proved by evidence in the form of documents on record and not in vacuum or in the abstract.

Section 9 of the Act provides the formal source rule which provides for taxing gains that arise from the transfer of capital assets that are in India. In this case, Hutchison’s gain arose from the sale of shares of CGP, a capital asset located in Cayman Islands. Therefore Hutchison’s gain was not chargeable to tax in India; thereby, Vodafone BV in not required deducting tax at source under the Act.

Chapter X of the Act does not provide to tax all amounts involved in a particular transaction, which are otherwise not taxable. Before bringing any transaction for charging tax, a taxable income must arise. Therefore ordering to pay tax to amounts involved in International Transaction tantamount to imposing a penalty for entering into a transaction as no taxable income has been incurred.

It emphasized that the law restricted the courts from imposing tax liabilities on the basis of economic substance of the transaction. The legal form of the transaction was that Hutchison had transferred shares of a Cayman Island company. Since, the shares were situated in Cayman Islands, the “formal source rule” failed to capture the Hutchison gains in India’s tax net. To sum it up, Petitioner simply argued that it was not legally right to hold that Hutchison gains were taxable in India.

The issue of shares by the Vodafone to its holding company and receipt of consideration of the same is a capital receipt under the Act 6 . Capital receipts cannot be brought to tax unless specifically/ expressly brought to tax by the Act 7 . It is well settled that capital receipts do not come within the ambit of the word ‘Income’ under the Act, save when so expressly provided as in the case of Section 2 (24) (vi) of the Act. This brings capital gains chargeable under Section 45 of the Act, to tax within the meaning of the word ‘Income’. 8

In this case, attention was drawn to the definition of `Income’ 9 in the Act which includes in its scope amounts received arising or accruing within the provisions of section 56(2) (vii)(b) of the Act. The definition applies to issue of shares to a resident in India. This order relies on the meaning of International Transaction provided in Explanation (i) to Section 92B of the Act. It is submitted that Explanation (i) to Section 92B of the Act only states that capital financing transaction such as borrowing money and/or lending money to AE would be an International Transaction. However, what is brought to tax is not the quantum of amount lent and/or borrowed but the impact on Income due to such lending or borrowing. Similarly, Explanation to Section 92B of the Act, which covers business restructuring, would only have application if said restructuring/ reorganizing impacts income. If there is any impact of income on account of business restructuring/reorganizing, then such income would be subjected to tax as and when it arises whether in present or in future. 10 In this case, such a contingency does not arise as there is no impact on Income which would be chargeable to tax due to issue of shares. 11

The issue of Chapter X of the Act being applicable is no longer an untouched matter because similar provision as provided in Section 92 of the Act was also provided under Section 42(2) of the Income Tax Act, 1922. The Supreme Court held that the action of revenue in seeking to tax a resident in respect of profit which he would have normally made but did not make because of his close association with a non-resident. It observed that it is open to charge tax on notional profits and impose charge on the resident. 12 The aforesaid provision of Section 42(2) of the 1922 Act was incorporated in its new avtar as Section 92 of the said Act. It was thus emphasized that the legislative history supports the stand of the respondent-revenue that even in the absence of actual income, a notional income can be brought to tax. 13

Section 92(1) of the Act uses the word ‘Any income arising from an International Transaction’. Accordingly, we see that, the income of any party to the transaction could be subject matter to charge tax and it does not provide that the income of resident only is taxable. In case of Chapter X of the Act, the matter of real income concept has no applicability. Therefore, the difference between ALP and the contracted price would be added to the total Income.

Chapter X of the Act is a complete code by itself and not merely a machinery provision to compute the ALP 14 . Chapter X of the Act applies wherever the ALP is to be determined by the A.O 15 . The Petitioner itself had submitted to the jurisdiction of Chapter X of the Act by filing/submitting Form 3-CEB, declaring the ALP 16 . It is the hidden benefit in the transaction which is being charged to tax. Therefore, the charging section is inherent in Chapter X of the Act.

OBSERVATION

No express legislation on capital account transaction:

Section 92(1) of the Act states that an income from an international transaction is a condition precedent for the applicability of Chapter X. The meaning of income will not include capital receipts unless it is specifically mentioned as provided in Section 2(24)(vi) of the Act. So, capital gains to be taxed under Section 45 of the Act are deemed to be income under the Act.

Income pre requisite for applicability of Section 56(1):

For application of Section 56 of the Act , an income must arise which can be taxed. Issuing of shares at a premium is on capital account gives rise to no income.

Charge and measure of tax entirely different:

The tax can be charged only on income and in the absence of any income arising, the application of the measure of ALP to the transfer value does not arise. Chapter X of the Act provides that a transaction can be taxed only after working out the income after finding the ALP of a transaction.

No relevance of Section 92(2) in the present case:  

Section 92(2) of the Act deals with a situation where two or more AEs enter into an arrangement whereby they are to receive any benefit, service or facility. This provision is not applicable in this case as there is no situation where there is no allocation of any cost or expense between the petitioner and the holding company.

The transaction entered by the Petitioner amounts to transfer of a capital asset and not a transfer of controlling interest ipso facto in a corporate entity and is chargeable to tax in India.

It was held that any profit or gain arising from the transfer of a company in India has to be considered as a profit and gains of the company which actually owns and controls it. In this case, the income from the transfer is accrued by the HTIL and not Cayman Island Company (CGP). Therefore, the recipient was HTIL. Therefore the interest of the recipient is divested to the petitioner and hence is liable for capital gains tax.

The Effects Doctrine Extra-territorial operation of Section 195 of the I.T Act provides that any state may impose liabilities, even upon persons not within its territory, for conduct outside its borders that has consequences within the borders of its state. Hence, the dominant purpose of entering into agreement by the two foreign companies is to acquire the substantial interest and of which one foreign company is held in the Indian company the municipal laws of the country would be applicable and hence Indian Tax laws will be applied.

If the Hutchison gains were held not to be taxed in India, India would forfeit its right to tax as the country of source. Thereby the taxpayers will try to exploit the unintended loopholes in India’s tax law.

If the Hutchison gains were held taxable in India it would fortify India’s taxing rights as a source country- if you earn value from India, you shall be taxed in India. The entire value earned by HTIL “was only on account of the fruits of the investment made by HTIL in India, goodwill/brand value generated by HTIL for the Hutch brand in India, the telecom licenses granted in India, customer base in India and the prospect of future development and expansion in India 17 .” In the context of capital gains on company’s shares, the settled legal principle is that shares are located where the company’s share register is maintained, normally the place of its incorporation 18 . Rendering Hutchison gains taxable in India would entail imposing “substantial tax liabilities, after the fact, on entities that would avoid such liabilities according to this formal rule” 19 .

SUPREME COURT

Vodafone International Holdings … vs Union Of India & Anr

CITATION-[2012] 1 SCR 573

Whether the Indian Revenue Authority can tax a sale of shares between two non-resident companies on an offshore transaction where the controlling interest of an Indian corporation is purchased on the basis of that transaction?

PRINCIPLES DEALT BY SUPREME COURT

Piercing the corporate veil

Companies are separate legal entities that are independent from its shareholders and management. This is the foundation for company and tax laws. It is a general principle that a holding company is not liable for the acts of the subsidiary.

The Supreme Court held that it is the duty of the court to find the nature of the transaction and when doing it; it must look at the whole transaction and must not deal the elements of the transaction separately.

Considering the facts and circumstances of the transaction, the court must determine whether the transaction made primarily to evade taxes. It can be justified by piercing the corporate veil.

The Supreme Court held that strategic foreign direct investment (FDI) into India must be seen in a holistic manner.

By application of this doctrine, the Supreme Court held that the major purpose in Vodafone was to transfer the shares of CGP and not transferring the rights in HEL (situated in India). The court held that corporate can be pierced and the principal company can be held liable for the acts of the subsidiary company when it is shown that the company has misused to achieve certain wrongful objectives. 20

Tax avoidance and tax planning

The Supreme Court made a detailed difference between tax evasion and tax planning. The court held that tax planning is not illegal, illegitimate or impermissible. The debate over the validity and legality of the decision in Union of India v Azadi Bachao Andolan ((2004) 10 SCC 1)) and its departure from McDowell and Co Ltd v CTO ((1985) 3 SCC 230) on the specific issue of tax avoidance has been settled in this case.

The Court clarified that Justice Reddy’s observations extended only to artificial and colourable devices. Thereby it is wrongful to understand that mean all tax planning is illegal, illegitimate or impermissible.

Limitation Of Benefits clause.

Justice Radhakrishnan (in his concurring judgment) held that in case of absence of LOB clause in the Treaty, and in light of the existence of CBDT Circular No. 789 of 2000 and a TRC certificate, the Revenue cannot at the time of sale, disinvestment or exit from FDI in India, deny benefits to Mauritian companies by stating that the FDI was routed through a Mauritius company from somewhere else.

Tax Residency Certificate

In this case, the court held that the treaty and circular will not restrict the Revenue from denying Treaty benefits, when it is proven that the Mauritian company at the time of disposal of shares, made the transaction with intent to avoid tax. The court also referred to the memorandum of understanding (MOU) signed between India and Mauritius which is to track down transactions tainted by fraud and financial crimes. The court held that Mauritius is a clean jurisdiction to route investments into India and, provided the transaction is not found to illegal or colourable which was designed to evade tax.

Section 9 of the Act  

The Supreme Court explained that section 9(1)(i) gathers in one place various types of income that are deemed to accrue or arise in India. It includes: “All income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India”.

“The Supreme Court noted that the words “directly or indirectly” in section 9(1)(i) of the Act refer to the income and not the transfer of a capital asset (property). It held that to apply the words “directly or indirectly” to the transfer of a capital asset (such as HEL) “would amount to changing the content and ambit of section 9(1)(i). We cannot re-write section 9(1)(i). The legislature has not used the words indirect transfer in section 9(1)(i).” It noted that, “if the word indirect is read into Section 9(1)(i), it would render the express statutory requirement of the 4th sub-clause in section 9(1)(i) nugatory” 21

The court also made reference to the fact that the Direct Taxes Code Bill 2010 (DTC) proposes the taxation of offshore share transactions, which leads to the inference that indirect transfers are not presently covered by section 9(1)(i).

Transfer of HTIL’s property rights by extinguishment  

The court held that the case concerned the sale of shares and not the sale of assets. The court adopted the “look at” approach (as opposed to the “dissecting” approach) and held that the facts and circumstances of the present case must be viewed holistically. Hutchison has been part of Indian telecom business since 1994, and had been paying income tax in India.

Therefore, the transaction entered into cannot be considered sham or colourable. The court was of the view that the transaction took place only with intent to invest in India and not evade tax. The court also held that non-compete rights and the use of the Hutch brand were not property rights and it could not be subject to tax in India.

Withholding tax obligations: sections 195 and 163 of the Act

The transaction entered into by the companies is between two non-resident entities and was executed outside India. Consideration was also passed outside India. The court held that when a payment is made between two non-residents situated outside India, then the transaction has no nexus with the underlying assets in India. Therefore, Vodafone was not legally obliged to respond to the section 163 notice issued which declares a purchaser of an asset as a “representative assessee”.

The tax is levied on the basis of the source and the source is the location where the sale takes and not where the product is derived or purchased from.

HTIL and VIH are foreign companies and the sale takes place outside India, so the source of revenue is outside India. It could be taxable only when this trade is protected by legislation. The tax laws must be strictly construed and tax can be laid only when the language of the statute unambiguously states so. The provision for charging income tax must not be expanded to impose a tax burden which would otherwise be non-taxable. Therefore indirect movement of capital assents cannot be included by expansion of the provision. The present transaction was carried out between two non-resident persons in a contract conducted outside India where the consideration was also rendered outside India and VIH is therefore not legally obligated to respond to the notice referred to in section 163 relating to the purchaser’s care as a representative measure.

The selling of HTIL’s CGP shares to Vodafone or VIH amount to transfer of capital assets under the scope of Section 2(14) of the Income Tax Act and therefore not chargeable under capital gains tax on all rights and entitlements resulting from the shareholder agreement, etc., which form an integral part of CGP ‘s shares. The order of High Court of the demand of nearly Rs.12, 000 crores by way of capital gains tax would amount to imposing capital punishment for capital investment and it lacks authority of law and therefore is quashed.

GROUNDS ON WHICH THE ORDER CAN BE REVERSED

1. On bringing the retrospective amendment which states that any income which arises either directly or indirectly by means of or by reason of transfer of assets in India shall be deemed to accrue or arise in India and can be

2. The explanation inserted by finance Act 2012 to sec. 9(1)(1) in its 2 nd exception provides that CGP Investments is a 100 % subsidiary company of Hutchison company and is wholly controlled by the latter company. Therefore the exception provided in the explanation is not applicable and hence capital gain arising through sale is taxable at source.

The SC through its landmark judgment has removed certain uncertainties revolving around the imposition of taxes in the country. By means of this verdict certain principles have been established and recognized by the SC including:

• Principles relating to tax policies and plans
• The validity of tax avoidance by providing the taxpayers the right to reduce their liabilities to a maximum extent by legitimate arrangement of their income and business affairs provided nothing contrary to such act is specified in the enactments.
• The establishment of corporate structures by multinational companies for business and commercial purpose.
• The application of the principle of lifting of the corporate veil in all transactions done with an objective of evading taxes.
• Lastly the need for a holistic view or approach when dealing with cases involving companies having made investments in tax neutral countries. It further urges to avoid the misconception that presence of corporate structures in tax free countries is necessarily a scheme for avoiding tax.

In short, the SC through its judgment has distinguished tax avoidance from tax evasion and along with certain other significant principles recognized tax avoidance as a legitimate activity while penalizing tax evasion, further highlighting its view on the need for a legitimate tax planning.

CRITICISMS TO THE SC JUDGEMENT:

The judgment pronounced by the SC in this case has been to subject to severe criticisms. The SC is loathed for providing such a verdict. It is argued that SC has set a precedent that brings into jeopardy thousands of crores of potential revenue.it was also pointed out that tax avoidance through artificial devices is now a days very much prevalent in the industry and many large firms gain huge sums of money through such schemes. It was opined that the judgment in McDowell though reverted by 2 other decisions (Azadi Bachao Andholan and Wallfort) has dealt with the issue in the right perspective. The Mauritius companies are considered to be ‘post box companies’ and its remarked that the benign attitude of the tax authorities has led to a blatant evasion of taxes. The SC is blamed for not setting right the mistake it made by transgressing the McDowell judgment in the Vodafone verdict. The SC verdict is condemned on the basis that despite being aware of the transaction’s true nature as being transfer of Indian asset the SC has shown ignorant behaviour by providing such a verdict. This act of SC is viewed as a welcoming gesture for the foreign companies to evade taxes in India, jeopardizing crores and crores of potential revenue to the country and the attitude of courts towards such artificial tax evading devices. This judgment as a contract to the judgment in the 2G scam is considered to be arbitrary in nature.

CASES IN WHICH VODAFONE CASE HAS BEEN CITED

1. M/S Shri Vishnu Eatables (India) … vs Deputy Commissioner Of Income … on 3 October, 2016

“It is necessary for the Assessing Officer to decide the issue of objection to applicability of chapter X, if raised by the assessee, before referring the transaction to the TPO as it is a basic issue and would prevent loss of man hours on both sides in computing the ALP if it is finally concluded that Chapter X is not applicable.” 22 [3]

2. Income Tax Appellate Tribunal – Mumbai

Exind Trading P. Ltd, Mumbai vs Ito 6(2)(4), Mumbai on 7 November, 2019 It was held that the Vodafone case and CBDT Circular was not applicable in this case.

3. Income Tax Appellate Tribunal – Mumbai

Income Tax Officer-1(3) (2), … vs Singhal General Traders Private … on 24 February, 2020

“The premium on share issue was on account of a capital account transaction and does not give rise to income and hence, not liable to transfer pricing adjustment.” 23

4. Allahabad High Court

Rakesh Mahajan vs State Of U.P. And 4 Others on 4 December, 2019

“The legal relationship between a holding company and WOS is that they are two distinct legal persons and the holding company does not own the assets of the subsidiary and, in law, the management of the business of the subsidiary also vests in its Board of Directors.” 24

5. Income Tax Appellate Tribunal – Delhi

M/S. New Delhi Television Ltd., … vs Dcit, New Delhi on 14 July, 2017

“If an actual controlling Non-Resident Enterprise (NRE) makes an indirect transfer through “abuse of organisation form/legal form and without reasonable business purpose” which results in tax avoidance or avoidance of withholding tax, then the Revenue may disregard the form of the arrangement or the impugned action through use of Non-Resident Holding Company, re-characterize the equity transfer according to its economic substance and impose  the tax on the actual controlling Non-Resident Enterprise.”25 [4]

INTERNATIONAL LAW AND VODAFONE CASE

The Permanent Court of Arbitration in The Hague, Netherlands, held that an amendment to Indian tax laws was in violation India and the Netherlands agreement.

The international arbitration proceeding was initiated by Vodafone International Holdings

B.V. (VIH or Vodafone) against the government of India regarding the retrospective amendment made to Indian tax

Permanent Court of Arbitration (PCA) held that the imposition of taxation through a retrospective amendment to domestic tax laws for imposition of tax, was in violation of “fair and equitable treatment” provided under the Agreement between the Republic of India (India) and the Kingdom of Netherlands (Netherlands). Moreover, any attempt to enforce tax demand on Vodafone would amount to breach of international obligations.

The objective of the agreement is for Promotion and Protection of Investments (India- Netherland BIT). This award does not mark the end of dispute as the Indian Government has the opportunity to challenge it before the High Court of Singapore.

The full text of the arbitration award is not in public domain. But it is known that the imposition of a tax liability based on a retrospective amendment is held to be breach of fair and equitable treatment laid down in Article 4(1) of the India-Netherland BIT.

Permanent Court of Arbitration at The Hague ruled that the demand made by India for Rs 22,100 crore by retrospective amendment as capital gains and withholding of imposition of tax for a 2007 deal on Vodafone Company was breaching the provision of agreement regarding fair and equitable treatment.

Recently, the Indian government has challenged the arbitration award in Singapore Court. The government is of the opinion that the matter of taxation is not covered under the treaty and taxation is a sovereign right of the country.

CAIRN’s DISPUTE

Cairn UK Holdings Limited, a company incorporated in the U.K. (Cairn UK), had a wholly- owned subsidiary, Cairn India Holdings Limited, a company incorporated in Jersey (Cairn Jersey). Cairn Jersey owned subsidiaries in India. In the year 2006, Cairn UK transferred its entire shareholding of Cairn Jersey to Cairn India. Subsequently, Cairn India acquired the entire business of the Cairn group in India.

In 2014, pursuant to a survey action carried out at the premises of Cairn India, the Indian income-tax authorities was of the view that the transfer of shareholding in Cairn Jersey had the effect of transferring the business in India and therefore, in view of the retrospective amended income-tax laws, Cairn UK was liable to pay capital gain tax in India. This action was challenged by Cairn UK and is currently sub-judice before the High Court of Delhi in India. While the proceedings were ongoing in India, Cairn group also initiated arbitration proceedings against the Indian Government under Article 9 of the Agreement between the Government of the Republic of India and the Government of Great Britain and Northern Ireland for Promotion and Protection of Investments (India-UK BIT).

BINDING FORCE OF VODAFONE CASE

The “Doctrine of Stare Decisis,” as prevalent in common law legal systems. It means “to abide by the precedents and not to disturb settled points.” There is no similar doctrine in civil law systems or under International Law. The International Centre for Settlement of Investment Disputes (ICSID) and the UN Commission on International Trade Law (UNCITRAL) provides that the award shall be final and binding upon the parties to the dispute. In absence of any prevalent rule of binding precedent of earlier awards, the international arbitration tribunals, functioning under ICSID and UNCITRAL, do consider previous awards to have a persuasive value.

Whether the Vodafone arbitral award would have any persuasive value in arbitration proceedings of Cairn UK would depend upon the factual matrix in both the cases.

Both cases involved indirect transfer of Indian assets prior to retrospective amendment in 2012 coming into effect.

Thereby the case was decided in favor of Cairn UK and it was not liable for capital gains tax.

CONSEQUENCE OF THE CASE

The government has got excessive flak for retaining India’s “retrospective” tax on asset transfers after it recently lost a case against Vodafone in an international arbitration court. Two broad critiques are important to note.

1. Governments should never make tax changes with retrospective

2. Tax laws must be stable in order to attract foreign (or even domestic) investment.

3. Vodafone must have been aware that asset transfers in India would attract capital gains By shifting the relevant jurisdiction to a tax haven, it seems to have got a lower price from Hutchison, a majority owner of the telecommunications company. Therefore, the objective appears to be a case of tax avoidance by using a grey area in Indian tax law.

Professionals have said that there is a need for clarity and certainty in tax laws to attract foreign investments. A liberal tax policy would attract Foreign Direct Investment into India. Some professionals say that the SC could have considered this issue and that is the reason why the decision is in favour of the foreign investor (Vodafone).

The arbitration tribunal also held that the terms of the agreement was not complied by India and it is established that India has contravened the provisions of the agreement. Therefore, the government must stop taking measures to recover tax from Vodafone.

AMENDMENTS IN TAX LAW RELATING TO VODAFONE CASE

In 2012, the government of India changed the Supreme Court’s decision by proposing an Amendment to the Finance Act, which gave the power to Income Tax Department to retrospectively tax such deals.

RETEROSPECTIVE TAXATION

Retrospective taxation gives the state a power to make a rule on taxing certain products, items or services and deals and levy tax on companies even before the date the Act was passed.

Most of the countries use this method to rectify any gaps in their taxation laws that existed and allowed companies to take advantage of such loopholes. Many countries have retrospectively charged tax on companies.

Retrospective amendments are generally given to taxation laws to “clarify” the previously existing laws. It ends up hindering companies which interpreted the rules, knowingly or unknowingly in a different way. These retrospective amendments had been criticised by various investors as, this type of change in laws would affect foreign fund flow into India.

In this case, the Parliament passed the amendment to the Finance Act in 2012, by retrospective effect and subsequently made Vodafone liable for tax payment. Thereby, this case was called ‘retrospective taxation case’.

EFFECT OF RETROSPECTIVE AMENDMENT:

The onus to pay taxes fell on Vodafone after the government enacted the retrospective amendments. This amendment was criticized by investors globally. The amendment was held to be a badly drafted law as it had affected to nullify the decision of the highest court of the Nation. Following such criticisms India tried to settle matters amicably with Vodafone but all its attempts faced failure.

Does the legislature have the right to declare any decision of the court of law to be void or of no effect?

In Shri Prithvi cotton mills limited and another v. Brouch Borough Municipality and others 6 1969(2) SCC 283 the court remarked that even if the legislature has competence it cannot merely pass a law to which the verdict of the court shall not bind as such an act is a tantamount to reversing the decision of the court by exercise of judicial power which the legislative authority does not possess. A court’s decision can only be altered when unless it is fundamentally incorrect.

In Cauvery water disputes Tribunal, a constitutional bench held that legislature is authorized to change the basis of the verdict and thus the law in general affecting a class of persons at large but the legislature cannot bring any laws overriding the court’s decision such that it affects the rights and liabilities of an individual person.

Similarly, in State of Tamil Nadu v. State of Kerala and another 9 (2014)12 SCC 696 the court held that as per the doctrine of separation of powers enriched in the constitution all the 3 organs are independent and thus a law can be set aside only when it breaches the principles of equality as enriched in the article 14 of the constitution. Further it declared that the HC and SC are empowered to determine the validity of any law of the legislature.

From the above decisions its clear that the legislature cannot bring into effect any law which overrides court’s verdict and affects the rights of an individual alone as in the landmark case of Vodafone. But it has the right to effect laws affecting a class of people in general.

As the Supreme Court decided in favor of Vodafone, subsequent amendments to the Act were brought in by the legislative authorities to reverse the judgment. The Act was amended such that it provides for the following:

INCOME THROUGH TRANSFER OF CAPITAL ASSET SITUATED IN INDIA: –

SECTION 9: it provides that the following income shall be deemed to accrue or arise in India:

All income arising directly or indirectly

• Through any business connection in India or
• From or through any property in India or
• Through any asset or source of Income in India or
• Through the transfer of capital asset situate in

The following explanations 4, 5, 6 and 7 was inserted through Finance Act 2012 to section 9(1)(1).

Explanation 4 : it clarifies that the word “through” shall mean and include and shall be deemed to have always included “by means of”, “in consequence of” or “by reason of”.

Explanation 5 : through this it is clarified that an asset or capital asset being shares or interest in a company or entity registered or incorporated outside India shall be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India.

But in order to make explanation 5 operational the Finance Act 2015 provided certain clarifications:

Explanation 6 : For the purpose of this clause, it is hereby declared that-

1. Substantial – any share or interest of a foreign company shall be deemed to derive its value substantially from the assets situated in India, if on specified date the value of Indian assets-

• Exceeds the amount of 10cr rupees; and
• Represents at least 50% of all the assets owned by the company or

2. Value of asset – the value of the asset shall be fair market value of such asset without reduction of liabilities, if any in respect of the

3. Specified date – it is the date on which the accounting period of the company or entity ends preceding the date of transfer. If on the other hand the book value as on date of transfer of the assets exceeds at least 15% of book value as on the last balance sheet date preceding the date of transfer, than instead of the date mentioned above the date shall be the specified date of valuation.

4. Mode of determining FMV: the fair market value will be determined as per the rules prescribed.

5. Taxation on proportional basis: the capital gains arising out of the transfer of shares of assets located outside India of any company registered outside India will be taxed proportionally as specified in the

Explanation 7 provides for certain exceptions; they are as follows:

Exemption in case foreign company or entity (whose share or interest get transferred) directly owns Indian assets

Exemption shall be available to the transferor of a share of, or interest in, a foreign entity if the transferor (along with its associated enterprises), at any time in the twelve months preceding the date of transfer,

a. Neither holds the right of control or management of such foreign company or entity;

b. Nor holds voting power or share capital or interest exceeding 5 per cent of the total voting power or total share capital of such foreign company or entity;

Exemption in case foreign company or entity (whose share or interest get transferred) indirectly owns Indian assets

 In case the transfer is of shares or interest in a foreign entity which does not hold the Indian assets directly then the exemption shall be available to the transferor if the transferor (along with its associated enterprises), at any time in the twelve months preceding the date of transfer-

a. Neither holds the right of management or control in relation to such foreign company or the entity

b. Nor holds any rights in such company which would entitle it to either exercise control or management of the company or entity that directly owns the assets situated in India or

c. Nor entitle it to voting power exceeding 5 percent of total voting power of the company or entity that directly owns the assets situated in India.

Impact of the explanations on the final verdict:

From explanation 4 added it can be deduced that any income which arises either directly or indirectly by means of or by reason of transfer of assets in India shall be deemed to accrue or arise in India and is taxable in the hands of Hutchison company, Hong Kong.

Similarly, explanation 5 brings within its scope the transfer of shares of CGP investments, Mauritius being a company incorporated outside India. It provides that the shares are situated in India as such and shares derive its substantial value from the business of a company located in India.

This way through such amendments the coverage of section 9(1)(1) has been increased retrospectively to include indirect transfers.

Impact of the exemptions given in Explanation 7:

As the Vodafone case revolves around indirect transfers the second exemption provided is of importance. From the second exemption it can be seen that to be relieved from tax burden in case of transfer of shares of a foreign entity, here which is shares of CGP Investments, Mauritius, which indirectly holds Indian assets the transferor or the seller in the given case being Hutchison, Hong Kong must not manage, control or hold any rights which may provide for such control over the foreign entity whose shares are being transferred i.e., CGP Investments.

But, CGP Investments being a 100 % subsidiary company of Hutchison, Hong Kong is completely controlled by the latter and thus, Hutchison does not come within the scope of this exception. Hence, any capital gain arising from sale of the shares of CGP Investments is taxable at source in its hands.

Thus, in a way it can be concluded that the amendments brought about through the finance act 2015 become rationally comprehensive in budget 2012. Thereby, through such amendments the coverage of section 9(1)(1) has been increased retrospectively to include indirect transfers to cancel the effect of the SC verdict.

SECTION 2(14) 0F THE INCOME TAX ACT

“ capital asset” means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include:

(i) Any stock- in- trade, consumable stores or raw materials held for the purposes of his business or profession;

(ii) For personal effects, that is to say, movable property (including wearing apparel and furniture, but excluding jewellery) held for personal use by the assessee or any member of his family dependent on him.

(iii) Agricultural land in India, not being land situate-

(iv) 6 per cent Gold Bonds, 1977, or 7 per cent Gold Bonds, 1980, or National Defence Gold Bonds, 1980, issued by the Central Government;

(v) Special Bearer Bonds, 1991, issued by the Central Government;

(vi) Gold Deposit Bonds issued under the Gold deposit Scheme,1999.

Both the Bombay High Court and the Supreme Court held in this case that “controlling interest” is not a capital asset. The Finance Bill added the following Explanation:

The following explanation was added to the existing provision

Explanation: For the removal of doubts, it is hereby clarified that

1. ‘property’ includes and shall be deemed to have always included

2. Any rights in or in relation to an Indian company,

3. Including rights of management or control or any other rights whatsoever”

Therefore, as per the amendment , the rights of the Hutchison Hong Kong in Indian company shall be included in the term capital asset under section 2(14) including the right of management and control (i.e.,) right to appoint directors , right to access to hutch brand in India and non-competing agreement . Hence, in this case the capital asset in India has been transferred by Hong Kong to Vodafone.

SECTION 2(47) IN THE INCOME TAX ACT

Transfer”, in relation to a capital asset, includes, (i)the sale, exchange or relinquishment of the asset; or

(ii) the extinguishment of any rights therein; or

(iii) the compulsory acquisition thereof under any law; or

(iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock- in- trade of a business carried on by him, such conversion or treatment; or

(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of TOPA Act ; or

(viii) Any transaction (whether by way of becoming a member of, or acquiring shares in, a co- operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.

For the removal of doubts, it is hereby clarified that “transfer” includes and shall be deemed always to have included,

• Disposing of or parting with an asset or any interest therein, or
• Creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily,
• By way of an agreement (whether entered into in India or outside India) or otherwise,
• Notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company incorporated outside India.”

Therefore, as per amendment, in this case, the transfer made by Hutchison Hong Kong to Vodafone is of the rights of Indian company including rights of management and control, as it has by transferring the shares of CGP Mauritius, disposed of or parted with the rights of the Indian company and through indirect means, created interest of Vodafone in Indian company. It has done this by way of agreement .Transfer of rights take place by way of transfer of shares by a company incorporated in Mauritius.

SECTION 195 OF THE INCOME TAX ACT- Other sums

(1) Any person responsible for paying to a non- resident, not being a company, or to a foreign company, any interest shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income- tax thereon at the rates in force.

Explanation 2 has been inserted in section 195(1) to clarify the obligation to comply with section 195(1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, residents, non-residents, whether or not the non- resident has: –

(i) A residence or place of business or business connection in India.

(ii) Any other presence in any manner whatsoever in India.

Therefore as per amendment, the presence of Vodafone establishment in India or the residence or place of business of Vodafone or its business connection in India is not necessary for deduction under section 195 but Vodafone had sufficient nexus in India.

Retrospective amendments are amendments which have backwards operation i.e., they come into effect from a past date. In India the finance minister has recognized the power to legislate retrospective laws and amendments. But the question as to the constitutional legitimacy of such amendments is a debatable question; though it is held valid in certain situations majorly it is held to be inconsistent. Thus, as a check on such amendments their use is restricted only to exceptional cases.Vodafone was considered to be one such exceptional case were the amendments introduced in Finance act 2012 were given effect from the past date. It was a revolutionary but a clever move made by the GOI to tax the Vodafone company which faced severe criticism from the global investors. The arbitration also held it to be violative of the India-Netherlands BIT.

The Senior advocate and architect behind Vodafone’s win Harish Salve opined his view on the retrospective amendments being a crusher of India’s image in the minds of the overseas investors and citizens. He criticized the instability shown by our government. He stated that the prosperity of the country depends upon the economic and political institutions of the country, on their stability and transparency.

Hence, though the government is granted the power to legislate laws and amendments with retrospective effect, its scope is restricted to exceptional cases and so before making any retro operative law consideration of its necessity, applicability and effects by the government is vital.

Vishnupriya. B | 4 th year B.B.A.LL. B(Hons) SASTRA Deemed to be University. Thirumalaisamudram | [email protected]

Abirami. A. B | 4 th year B.B.A LL. B (Hons) SASTRA Deemed to be University. Thirumalaisamudram | [email protected]

Nithya Parvathy.RG

Soundarya .A.

3 http://ramauniversityjournal.com/law/pdf_dec2019/03.pdf

4 Institute of Chartered Accountants of India v. L.K. Ratna & Ors (1986) 4 SCC 537

5 Krishnaji Ketkar vs Mahomed Haji Latif & Ors on 19 April,1968 AIR 1413, 1968 SCR (3) 862

6 Bombay High court Judgment para 14(f)

7 Cadell Weaving Mill Co. P. Ltd. vs Commissioner Of Income-Tax on 6 February, 2001

8 Section 45 Income Tax Act

9 Section 2(24) (xvi) Income tax Act

10 Bombay High court Judgment para 13(e)

11 Bombay High court Judgment para 16(i)

12 Mazagaon Dock Ltd. V. CIT [1988] 34 ITR 368

13 Taxation of notional income: a comparison of tax regimes-Manu Patra

14 Bombay High Court Judgment para 18(f)

15Bombay High Court Judgment para 6(g)3

16 Bombay High Court Judgment para 18(b)

17 Writ Petition No. 1325 of 2010, decision delivered on September 8, 2010 paragraph 54

18 Brassard v. Smith 39 (1925) AC 371 as quoted in paragraph 95 of the Judicial    Opinion

19 Weisbach, David A. 2002. “An Economic Analysis of Anti-Tax-Avoidance Doctrines”

20 United States v. Bestfoods [141 L Ed 2d 43: 524 US 51 (1998)]

21 Victory for Vodafone in Indian Supreme Court: the final conclusion or another twist in the tale? by Aditi Mukundan and Mansi Seth, Nishith Desai Associates

22 Judgment para 16

23 Judgment para 7

24 Judgment para 68

25 Judgment para 5.12

• Vodafone tax case
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Very well written article.

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