Flipkart takeover: Walmart says will pay all its tax dues

NEWDELHI: US retail giant Walmart Inc. has shared all details of its share purchase agreement with Flipkart, and has also expressed willingness to pay all tax dues in India, if assessed, according to people familiar with the matter in the government and the company.

In May, Walmart announced the acquisition of 77% stake in Flipkart in a $16 billion deal; soon after, the Indian tax department wrote to the US retailer asking for details of the agreement and advising it to approach an Authority of Advance Rulings, to see if the deal attracted any tax liability in India.

Flipkart’s holding company is incorporated in Singapore, and the deal i nvolves Walmart acquiring the online retailer’s shares from investors such as Tiger Global, which is based in the US and Japan’s Softbank group.

“Walmart has responded with the details of the agreement. We will now see if there is any tax liability India, whether there is an instance of withholding tax that is payable. It is a deal that not only involves Walmart and Flipkart but also Softbank and other foreign investors selling stake,” said an official in the tax department, who asked not to be identified.

Singapore-registered Flipkart Pvt. Ltd holds majority stake in Flipkart India; as per the deal Walmart will acquire 77% of the Singapore-based company, giving it effective control of the Indian company, added the tax official quoted above.

Section 9(1) of the Income Tax Act provides for taxation of indirect transfer of assets, and the Indian authorities will assess if there is any tax due in this case. As per Section 9(1) of I-T Act dealing with indirect transfer provisions, the value of shares of a foreign company is deemed to be substantially derived from India, if the value of the Indian assets is greater than 50% of its worldwide assets. With all of Flipkart’s business coming from Indian customers, that is likely to be the case.

“We are ready to work with the Indian government and will abide by rules of the country,” said a Walmart official who asked not to be identified. Indian tax authorities agree that the upfront sharing of agreement details is a “welcome move” and shows willingness from the company to pay taxes.

The comments from the tax authorities are significant given their last experience with another big-ticket acquisition; the Vodafone-hutch deal of 2007, where the Vodafone Group’s acquisition of Hutchison Essar from Hutchison Whampoa resulted in a tax case that’s still dragging on.