Kraft-Cadbury,GE among deals to see fresh tax demand

The revenue department is planning to raise fresh tax demands in the Kraft-Cadbury takeover deal,Sanofi Aventis-Shantha Biotech deal and GE’s stake sale to two US-based private equity investors after the passage of Finance Bill,2012,in Parliament

Written by Shruti Srivastava | New Delhi | Published: April 10, 2012 1:48 am

The revenue department is planning to raise fresh tax demands in the Kraft-Cadbury takeover deal,Sanofi Aventis-Shantha Biotech deal and GE’s stake sale to two US-based private equity investors after the passage of Finance Bill,2012,in Parliament.

Official sources told The Indian Express that the department has started contemplating action to be taken on the deals. Once the proposed Bill is passed,the $981-million Mitsui-Vedanta deal,struck five years back,and the $120-million SABMiller-Foster deal,inked in 2006,will “be automatically taxed”,the official said.

The government has proposed a validation clause 113 in the Finance Bill,which will operate “notwithstanding anything contained in any judgement,decree or order of any court or tribunal or any authority”. The department has also tried to provide clarity in Section 9 of the Income Tax Act,clarifying its position on indirect transfer of shares. Earlier,the government had told Parliament that these deals along with others were under the I-T radar for avoidance of tax payments.

In January 2010,Kraft took over British company Cadbury for around $19 billion,following which the I-T department had sent a notice to Cadbury India and its overseas parent Kraft Foods Inc,seeking details of the deal. The notice was the result of a directive from the finance ministry after a public interest petition was filed in the Delhi High Court in 2010 claiming that Kraft had illegally avoided tax liabilities related to the sale of shares and capital assets in India. However,US-based Kraft Foods Inc had said that it owed no taxes to the Indian tax department. “This is being assessed by the international taxation department,” the official said.

Similarly,in 2009,French drug maker Sanofi Aventis picked up a controlling stake in Hyderabad-based vaccine maker Shantha Biotechnics,for $783 million. The deal was routed through a special purpose vehicle created by Merieux Alliance of France,which held 90 per cent in the Indian company. The tax department had raised a demand of Rs 700 crore as withholding tax from Sanofi. The Authority for Advance Rulings (AAR) affirmed the view. The I-T department claim was challenged by Sanofi and the matter is now with the Andhra Pradesh High Court.

In April 2007,Japan-based Mitsui sold its 51 per cent share in miner Sesa Goa to the UK’s Vedanta Group for $981 million. The deal was routed through Finsider International,a company incorporated in the UK,which held Sesa Goa shares. Vedanta bought 100 per cent in Finsider. The tax dispute arose on whether tax is payable on the deal in India and the matter is pending before the Bombay High Court.

Likewise,General Electric (GE) sold majority stake in Genpact,India’s largest BPO firm,in 2004. The stakes were sold to US-based private equity companies – General Atlantic and Oak Hill Partners for $500 million for 60 per cent stake in the Indian firm. The matter is pending before the Delhi High Court.

In 2006,SABMiller had acquired 100 per cent shares in Foster’s India,the Indian arm of Foster’s Australia. The deal was between two international firms outside India but the assets were within the country. The I-T department demanded $39.5 million tax on the $120-million deal. The matter is currently before the Bombay High Court.

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