New Delhi: Smarting from the Vodafone fiasco, the income-tax (IT) department will seek share purchase agreement from Flipkart on the mega $16 billion buyout by US retail giant Walmart to assess the tax liability and also to find out whether the GAAR provisions can be invoked.
The dispute between the taxmen and Vodafone is going on for years and has resulted in many controversial decision including the retrospective amendment in the I-Tax Act, which marred India’s image. The dispute has still not been resolved despite many efforts made by the government.
Vodafone and I-T department have been involved in a tax dispute whether the company was liable to pay tax for the 2007 acquisition of majority stake in telecom operator Hutch (now Vodafone India) from Hutchison.
Along with penalties and interest the amount comes to around Rs 20,000 crore.
According to sources, the revenue department will write to Flipkart seeking the share purchase agreement that the company had entered into with Walmart to calculate the tax liability.
The I-T department currently is going through the Section 9(1) of the Income-Tax law, which deals with indirect transfer provisions, to see if the benefits under the bilateral tax treaties with countries like Singapore and Mauritius, could be available for foreign investors selling stakes to Walmart. Singapore-registered Flipkart Pvt Ltd holds majority stake in Flipkart India.
The deal will effectively result in transfer of ultimate ownership in Flipkart India to Walmart. General Anti-Avoidance Rules (GAAR), would apply in cases where the investments were made to avoid taxes.
In the Walmart-Flipkart deal, the revenue department will go through the share purchase agreement to ascertain the purpose of investment and the emanating gains.
The tax department had last week written to Walmart saying that the US company can seek guidance about the tax liability under Section 195 (2) of the I-T Act.
Under Section 195 of the Act, anyone making payment to non-residents is required to deduct tax (commonly known as withholding tax).
As per Section 9 (1) of the I-T Act dealing with indirect transfer provisions, the value of shares of a foreign company is deemed to be substantially derived from India, if the value of the Indian assets is greater than 50 per cent of its worldwide assets — a criteria that is apparently met in Flipkart's case.
