Walmart-Flipkart deal: Income Tax Department asks US retail giant to pay tax arising out of acquisition by 7 September

Just days after Walmart Inc executed the deal to acquire Flipkart, the Income Tax Department has asked the American retailer to pay a withholding tax arising out of the acquisition, by 7 September, a media report said.

“After Walmart makes the deposit, we will ask them for details about where they have deducted tax 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 access the liabilities carefully,” a tax official was quoted as saying by the Business Standard.

Walmart is likely to approach the Income Tax Department before 7 September, 2018, to ascertain its tax liability, according to the  Financial Express . Some stakeholders who exited Flipkart have also approached the income tax authorities to ascertain their final tax liability, The Indian Express reported.

Following the Competition Commision of India’s (CCI) nod to the Walmart-Flipkart deal, the I-T department expects Walmart to approach it under Section 197 of the Income Tax Act.

Under Section 197, any NRI selling shares can give reasons to Indian authorities as to why they should be taxed at a lower or nil rate in India.

Walmart assured the I-T department last month that it will fulfil all tax obligations.

Bengaluru-based e-commerce major Flipkart had in May tabled the 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 selling shares to Walmart.

Walmart on 9 May announced that it will pay approximately $16 billion to buy about 77 percent of 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 will sell his stake to the US major.

The department has been reviewing Section 9 (1) of the I-T Act, which deals with indirect transfer provisions, to see if the 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 a majority stake in Flipkart India.

In May, the I-T department had written to Walmart, saying that the US company can seek guidance about its tax liability under Section 195 (2) of the I-T Act.

Under Section 195 of the Act, anyone making a payment to non-residents is required to deduct tax (commonly known as withholding tax).

With inputs from PTI