Essar group?s Loop Telecom, a new licensee, has again run into trouble with government agencies. The government is likely to examine whether a transfer of shares between two subsidiary firms of the group based out of Mauritius is taxable, like in the case of the Hutch-Vodafone deal.

The Reserve Bank of India (RBI) has suggested to the finance ministry that though the share transfer is between two non-residents and no fund flows into the country have taken place?and therefore no reporting is required?it could examine the tax angle of the transaction in the light of the Hutch-Vodafone deal.

?The government may like to examine the tax angle involved in the transfer of shares between non-residents, in the light of department of revenue?s stance in the case of the Hutch-Vodafone deal,? RBI has written to Govind Mohan, joint secretary, investment & infrastructure in the finance ministry.

Earlier, the ministry of corporate affairs had asked the department of telecommunications to examine the shareholding pattern of the company to ascertain whether the transfer has violated the cross-holding licensing norms.

However, the RBI has given a clean chit to Loop Telecom on allegations of violation of foreign direct investment norms in the share transfer. On the issue of violation of cross-holding norms, the RBI has said, ?DoT may be in a better position to take a view on the matter.?

Loop Telecom had transferred 73,715,292 shares from Capital Global Ltd, Mauritius, to Kaif Investment, Mauritius. Both the firms are subsidiaries of the Khaitan group, whose Santa Trading is the majority owner of Loop Telecom but the Essar group has significant financial linkages with it.

As is known, the income tax department had earlier demanded tax of $1.7 billion from Vodafone for its acquisition of a 52% stake of Hutch in the then Hutch-Essar for around $11 billion in 2007. Since the transaction was between two companies located outside India, Vodafone had questioned the IT department?s jurisdiction in the matter. However, finding no relief from the Supreme Court in the matter, Vodafone is required to respond to the department?s notice.

The Essar group has a 33% stake in Vodafone-Essar and a 9.9% indirect stake in Loop. However, financially, it has a larger stake in Loop through a complex shareholding structure.

Loop Telecom, which acquired licences to operate telecom services in 22 circles in January 2008, has a complex ownership structure, which has invited allegations that the company has violated the 10% cross-holding norm, which prohibits any firm from even applying for new licences if it owns more than 10% in any existing licensee.

Essar Teleholdings Ltd (ETHL), part of the Essar group, has financing links with Loop Telecom, as around 24% of it is owned by BPL Communications, 51% by BPL Mobile Communications Ltd and 24% by Capital Global Ltd, Mauritius.

BPL Communications holds a 69% stake in BPL Mobile Communications, and around 80% of the former is owned by Santa Trading Pvt Ltd, which is owned by Kiran Khaitan, who?s the sister of Shashi and Ravi Ruia, who control the Essar group. This implies that anyone who controls Santa also controls Loop. ETHL, which holds 9.9% of BPL Mobile Communications that offers mobile services in Mumbai under the BPL Mobile brand, has subscribed to 90 million non-convertible debentures of Santa Trading, valued at Rs1,592 crore.