Taxmen begin scrutinizing the Flipkart - Walmart deal

Taxmen begin scrutinizing the Flipkart - Walmart deal

Taxmen begin scrutinizing the Flipkart - Walmart deal

Income tax authorities have started examining in detail US retailer Walmart’s takeover of Indian e-commerce major Flipkart. Flipkart has responded to the details of the acquisition sought by the income tax department. 

“They have responded to the queries sent out…The department is examining,” a senior income tax official told ET confirming the communication with the e-commerce company.

On May 9, Walmart had announced the acquisition of about 77% stake in Flipkart for $16 billion. Income tax authorities had written to Flipkart, prior to the deal’s announcement, seeking details of the transaction to examine the tax implications of the transaction for the government. 

“They have provided details of the transaction,” the official said. 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. Also, Flipkart’s parent entity is registered in Singapore. 

The income tax department had also written to Walmart seeking details of the Flipkart deal, apprising the company about Indian tax laws including that on indirect transfers and that it could approach the company for any clarity in provisions. Walmart, the tax official said, is yet to formally respond to the department’s letter. 

The income tax department believes that tax provisions relating withholding tax will come into play in respect of non-resident investors in Flipkart that have sold their holdings to Walmart. The resident sellers will have to cough up capital gains tax on the profits made by them while selling their stakes in Flipkart to Walmart. 

SoftBank, Tiger Global, Accel Partners and Naspers were the major foreign investors in Flipkart. They held equity in the Singapore-based holding company of Flipkart via entities in various tax jurisdictions including Mauritius and Jersey. 

India had amended its tax treaties with Singapore and Mauritius making investments from these countries liable to capital gains tax. 

The department will closely look into the investments made in Flipkart in view of revision in the bilateral tax treaties and the grandfathering of investments made prior to the treaty becoming effective. 

These are likely to be looked at keeping in view the general antiavoidance rules that bar tax benefit that was available under the tax treaties if the structure was created just for availing it. 


Source- https://economictimes.indiatimes.com/industry/services/retail/income-tax-department-starts-examining-walmart-flipkart-deal/articleshow/64390700.cms

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