The biggest acquisition in e-commerce that shook up the world-the Flipkart-Walmart is now being examined by the Income Tax departments in India where the tax body has sent queries to Flipkart-Walmart regarding the $16 Bn worth deal.
While Flipkart has responded to the details of the acquisition, Walmart’s explanation is still awaited.
The acquisition deal was sealed earlier on 9 May where Walmart bought 77% stake in Flipkart for a whopping $16 billion. Prior to the official deal announcement, Income tax authorities had asked Flipkart to furnish the details of the transaction to examine the tax implications of the transaction for the government.
It is important to note that transaction details are crucial for the income tax department to ascertain tax liability since many investors in Flipkart, who sold their stake in the deal with Walmart, are non-residents, especially when Flipkart’s parent entity is registered in Singapore. Additionally, Walmart might have to shed 10-20% withholding tax on the deal.
Popularly Known as Vodafone tax, Section 9(1)(i) of the I-T Act states that any income accruing or arising, whether directly or indirectly, inter-alia, through the transfer of a capital asset situated in India, shall be deemed to accrue or arise in India.
Further, depending on the nature of the investment, the withholding tax in cases of indirect transfers can vary from 10 to 20%. The Income Tax department believes that tax provisions relating to withholding tax will also be applicable with respect to non-resident investors in Flipkart that have sold their stakes to Walmart.
At present, global players SoftBank, Tiger Global, Accel Partners and Naspers are the major foreign investors who hold equity in Singapore based holding company of Flipkart via entities in tax jurisdictions that includes Jersey and Mauritius.
Meanwhile, Income Tax department is also closely studying the Walmart-Flipkart deal to examine the changes in the bilateral tax treaties. The tax measures will likely be looked keeping in view of general anti-avoidance rules that bar tax benefit that was available under the tax treaties if the structure was created just for availing it, according to an ET Report.