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US retail giant Walmart has assured the Indian income tax department that it will fulfil all tax obligations on its proposed USD 16 billion Flipkart buyout, an official said today.
In May, the IT department had written to Bentonville-Arkansas-based Walmart, saying that the US company can seek guidance about the tax liability under Section 195 (2) of the IT Act. This was after Walmart, on May 9, announced that it will pay approximately USD 16 billion to buy about 77 per cent stake in Flipkart.
Under Section 195 of the Act, anyone making payment to non-residents is required to deduct tax (commonly known as withholding tax).
“Walmart has replied to the letter saying they will fulfill all tax obligations,” an official said. However, the US company has not yet approached the IT department for consultation with regard to computation of tax liability, the official added.
Significant shareholders in Flipkart, like SoftBank, Naspers, venture fund Accel Partners and eBay, have agreed to sell their shares. Also co-founder Sachin Bansal would be selling his stake to the US retail major.
The tax department had earlier said that it would initiate action on the tax aspect of Walmart’s buyout of Flipkart only after the deal gets required regulatory clearances.
Bengaluru-based e-commerce major Flipkart has already shared ‘some details’ with the tax authorities and any notice seeking details of taxes withheld could be sent by IT department only after the deal is complete.
The department has been studying 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.
Problems in regulatory clearance?
According to experts, the only regulatory clearance that the deal would need is from the Comptetion Commission of India (CCI). Walmart had in May approached fair trade regulator CCI for approval of its proposed acquisition of a majority stake in e-commerce major Flipkart, saying the deal doesn’t raise any competition concerns.
Regulatory clearances have become important in the wake of complaints filed by RSS-affiliate Swadeshi Jagran Manch (SJM) to the Department of Industrial policy and Promotion (DIPP) alleging that US retail giant Walmart was ‘circumventing’ rules for a ‘back-door entry’ into India. The DIPP has referred SJM’s complaint to the Enforcement Directorate, Reserve Bank of India (RBI), Comptetion Commission of India (CCI) and the income tax department.
Besides, traders body CAIT too has complained to the Enforcement Directorate for alleged violation of the government’s foreign direct investment (FDI) policy. It has also approached the CCI, saying that the deal will create unfair competition and an uneven level playing field for domestic players.
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