Walmart may approach I-T Department to determine tax liability in Flipkart deal

Walmart is likely to approach the Income Tax Department to finalise the tax liability on its deal with Flipkart.

The total tax liability is expected to be up to $1.5 billion (about ₹10,200 crore).

The deal, which got the Competition Commission of India’s (CCI) approval on Wednesday, is expected to close within the next 7-10 days. It involves total cash outgo of around $16 billion.

Since shares are being bought from Non-Resident Indian (NRI), there is a need to get withholding tax certificates for determining the tax liability. The seller is required to obtain certificate determining tax liability under section 197 and deduct tax (commonly known as withholding tax) under section 195 of the income Tax

Relevant provision in Section 197 of the Income Tax Act says that if the Assessing Officer is satisfied that the total income of the recipient justifies the deduction of income tax at any lower rates or no tax deduction, as the case may be, then the Assessing Officer shall, on an application made by the assessee in this behalf, give to him such certificate as may be appropriate.

Section 195 says anyone making payment to NRI is required to deduct tax which is also known as withholding tax.

“We were told that the deal would be closed within a week of the CCI approval. So we expect them to file with the I-T authorities seeking withholding tax certificate under Section 197 within a fortnight,” a senior Income Tax official said.

“Since the deal involves recipients from various tax jurisdictions, and some of the tax jurisdictions might have Double Taxation Avoidance Agreement (DTAA) with India, tax liabilities have to be calculated accordingly. For some of recipients may have NIL tax liability,” a person familiar with deal structure said.

Walmart has already assured that it will fulfil all tax obligations.

Bengaluru-based e-commerce major Flipkart had in May shared share purchase agreement with tax authorities, and the I-T department is currently calculating the tax rate that would be applicable for investors in Flipkart who are selling the shares to Walmart.

The US major, on May 9, had announced that it will pay approximately $16 billion to buy about 77 per cent stake in Flipkart.

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. In May, the I-T department had written to Walmart, saying that the US company can seek guidance about the tax liability under Income Tax Act.

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