Days after Walmart concluded the $16 billion deal to acquire 77 per cent stakes in Flipkart; the Income Tax Department has initiated the process to collect tax from one of the world's biggest retail players.
Business Standard reported that the IT Department has asked the Bentonville-based retail giant to deposit the withholding tax liabilities arising out of the mega-deal with the Indian e-commerce player.
Last week, the Competition Commission of India (CCI) had given its green signal to the Walmart acquisition of majority stake in Flipkart. The two companies had announced the deal in May.
The estimated tax arising out of the deal is expected to be around $2 billion, which is more than 10 per cent of the transaction value. According to the Income Tax Rules, the withholding tax rate in case of long-term capital gains tax is between 10-20 per cent which depends on the nature of the investment.
The IT Department will carry out an assessment of the total liability after the American retails deposits the withholding tax.
"After Walmart makes the deposits, we will ask them for details about where they have deducted taxes and where they have not. Most sellers (Flipkart investors selling their stake to Walmart) might claim that they are exempt under the India-Singapore double tax avoidance treaty. So, Walmart will need to assess the liability carefully," one of the tax officials informed Business Standard.
It is to be noted that the parent entity of Flipkart is registered in Singapore and many foreign entities are involved in the company are investors.
On the other hand, Walmart has assured the IT Department that it would fulfil the tax obligation arising out of this deal. "We take seriously our legal obligation, including the payment of taxes to the government where we operate. We will continue to work with Indian authorities to respond to their inquiries," a Walmart spokesperson had said.
The government had recently amended tax treaties with Singapore and Mauritius and it was added that the capital gains tax exemption in India would not be available in respect of any investment made after April 1, 2017.
