Walmart in May announced that it will pay approximately $16 billion to for a 77% stake in Flipkart. Photo: Mint
New Delhi: US retail giant Walmart has assured the income-tax department that it will fulfil all tax obligations on its proposed $16 billion Flipkart buyout, an official said today. In May, the I-T department had written to Walmart, saying that the US company can seek guidance about the tax liability under Section 195 (2) of the I-T Act. This was after Walmart, on May 9, announced that it will pay approximately $16 billion to for a 77% 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 I-T 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 will sell 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 secures required regulatory clearances. The 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 the I-T 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 benefits under 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 the majority stake in Flipkart India.
According to experts, the only regulatory clearance that the deal would need is from the Competition Commission of India (CCI). Walmart had in May approached the CCI for approval of its proposed acquisition of a majority stake in Flipkart, saying the deal does not 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 the US retail giant was circumventing rules for a back-door entry into India.
The DIPP has referred SJM’s complaint to the Enforcement Directorate, the Reserve Bank of India (RBI), CCI and the I-T department.
Besides, traders body CAIT, too, has complained to the Enforcement Directorate alleging violation of the foreign direct investment (FDI) policy. It has also approached the CCI, saying the deal will lead to unfair competition and an uneven field for domestic players.