US retail major Walmart Inc. will comply with any potential tax demand arising from its $16-billion buy of a controlling stake in India’s online-retail market leader Flipkart.
“Our intent is, whether looking backwards related to our acquisition here or looking forward, we will be compliant with whatever the tax rules are. We will work with regulatory agencies on this,” Walmart CEO Doug McMillon told reporters here.
The statement comes in the backdrop of continuing tax litigation faced by global investors such as UK’s Vodafone Plc and Cairn Energy Plc. Ahead of Wednesday’s announcement about the deal, the tax department is learnt to have sent a communication to both Flipkart and Bentonville-based Walmart, apprising them about sections of the Income-Tax Act that would apply to the transaction since Flipkart derives “substantial value” of its shares from assets held in India and would be liable for taxation here.
McMillon said the Flipkart acquisition notwithstanding, the retailer plans to continue running its cash-and-carry business and expand it further. Walmart will operate both the brick-and-mortar and online retail businesses separately in India. It will also explore the possibility of replicating Flipkart’s payments ecosystem models in other countries.
Walmart’s investment, which primarily comprised purchase of Flipkart stock from existing shareholders including Japan’s Softbank Group, online marketplace eBay, South African technology firm Naspers and Flipkart co-founder Sachin Bansal, entails $2 billion of new equity funding.
The transaction, apart from tax authorities, would be subject to clearance from Competition Commission of India and other regulators and will make India the biggest emerging market with US-based Amazon, China’s Alibaba and Walmart pitted against each other.
McMillon said Walmart’s 77 per cent stake buy in Flipkart was “good for the country” as it would help create jobs over time. “It is pretty clear that this (deal) is good for customers and would create jobs,” he said. The jobs, he said, would be created not just in the company but with the suppliers who sell their products on the Flipkart platform.
Flipkart co-founder Binny Bansal said the online retailer would be run as a “board-managed company” and that there were plans to take it (Flipkart) public in due course. A timeline for this was not indicated.
The online deal notwithstanding, Walmart said it would continue to grow its wholesale cash-and-carry business, adding 50 new stores in the next four-five years. “We currently have 21 stores and plan to open 50 stores in five years. Plans are on track,” Walmart India president and CEO Krish Iyer said at the roundtable.
Walmart India is a wholly-owned subsidiary of Walmart Stores Inc and offers close to 5,000 items through its cash-and-carry wholesale format. At its 21 Best Price wholesale stores, Walmart sells items ranging from fast-moving consumer goods, durables and non-durables.
“We expect to open five stores in the current year and then pick up pace and eventually start opening 12-15 stores a year,” Iyer said.