The Finance Ministry has asked Sumitomo Mitsui Financial Group (SMFG) to pay a capital gains tax of $670 million, a year after the Japanese financial service company completed the purchase of 74.9 per cent stake in Fullerton India.

According to a Bloomberg report, Sumitomo Mitsui had held back only $170 million for paying the tax. In July 2021, SMFG signed a pact to purchase a 74.9 per cent stake in Fullerton India Credit for about $2 billion as part of a plan to grow its footprint in Asian countries outside of Japan.

The Finance Ministry did not respond to queries. A person aware of the matter in India told businessline, “This is a shareholders’ tax matter and they would be able to address it best. It’s pertaining to capital gains tax which accrued due to last year’s acquisition.”

A spokesperson for Sumitomo Mitsui told Bloomberg that the company is taking actions that comply with local laws and regulations and will continue to take appropriate measures. It is not clear if the Japanese firm will contest the tax demand.

The Supreme Court in 2012 had given a verdict that gains arising from the indirect transfer of Indian assets are not taxable under the extant provisions of the Act. But the provisions of the Income Tax Act, 1961, were amended by the Finance Act, 2012, with retrospective effect. This was used by the UPA government to impose tax demands on companies such as Cairn Energy and Vodafone. However, last year the NDA government brought a Bill in the Lok Sabha to withdraw all tax demands in a bid to assuage foreign investor concerns. This, however, has not relaxed the need to pay capital gains tax for deals done after 2012. In SMFG’s case, the question will be about the quantum of tax to be paid for the 2021 deal, said an expert.

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