Flipkart-Walmart deal: Tax department expects details from Walmart in a fortnight

The buyer, Walmart, is expected to withhold tax under Section 197 of the Income Tax Act, a senior tax department official said, adding that Flipkart has already shared the share purchase agreement with them.

Flipkart-Walmart deal: Tax dept expects details from Walmart in a fortnight

The Flipkart-Walmart deal of $16 billion was only recently approved.

A day after the Competition Commission of India (CCI) approved the Flipkart-Walmart deal, Indian tax authorities now expect retail major Walmart to file certificate for withholding tax within a fortnight of the closing of the $16 billion deal.

Since the deal derives substantial value from the assets held in India, it would be liable for taxation in the country. The buyer, Walmart, is expected to withhold tax under Section 197 of the Income Tax Act, a senior tax department official said, adding that Flipkart has already shared the share purchase agreement with them. “We were told that the deal would be closed within few weeks of the Competition Commission of India (CCI ) approval. We expect them to file withholding tax certificate under Section 197 within a fortnight,” the official said. The department is already examining the share purchase agreement shared by Flipkart. “The tax department is going through the share purchase agreement, reading in depth which investor has routed money from which jurisdiction and whether any treaty benefit applies to them, including limitation of benefits clause,” the official added.

Walmart in a statement said they will respond to the inquiries of the Indian tax authorities. “We take seriously our legal obligations, including the payment of taxes to governments where we operate. We will continue to work with Indian tax authorities to respond to their inquiries,” the Walmart statement said.

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Under Section 197, income tax is required to be deducted at the time of credit but the seller can give reasons to Indian authorities as to why they should be taxed at a lower or nil rate in India. “The income tax laws permit certain taxpayers to get relief from withholding tax/TDS at a lower or nil rate under Section 197 of the Income tax Act. An assessing officer can grant relief from TDS provisions, if the officer is satisfied that the existing and estimated tax liability of a person will be lower and the assessee provides sufficient grounds for the same,” Rakesh Nangia, managing partner, Nangia Advisors LLP said.

“In case the parties believe that this transaction is not liable to income tax in India due to any tax treaty benefit, either purchaser or seller entity may approach the Indian tax authorities for obtaining nil/ lower withholding tax order. Non-withholding of appropriate taxes shall entail interest and penal implications on Walmart,” Nangia added. In May, Walmart had announced $16-billion acquisition of 77 per cent stake in Flipkart. Significant shareholders in Flipkart, like SoftBank, Naspers, venture fund Accel Partners and eBay, have agreed to sell their shares.

The tax department had in May communicated to Walmart about the applicability of tax provisions of Section 9 (1) and Section 195 since both withholding tax and capital gains tax would apply on the deal.