Non-resident PE investors selling stakes to Walmart can approach the Authority of Advance Rulings or an IT officer to ascertain their tax liability.

Published: May 11, 2018

The Income Tax Department (IT-D) has told Walmart that it can approach tax authorities to ascertain its withholding tax liability on its purchase of a near 77 percent stake in e-commerce major Flipkart for about $16 billion (Rs 1.05 lakh crore).

According to a report in The Economic Times, the tax department sent a letter to Walmart saying the retail giant could approach an income tax officer to ascertain its tax liability on the deal. The letter was mailed to Walmart on 8 May, one day before the American retailer announced its Flipkart acquisition.

The IT-D told Walmart that it believes the American firm may have withholding tax liability under the law on payments made to non-resident investors.

Furthermore, the newspaper said that non-resident private equity (PE) investors selling stakes to Walmart have the option to approach the Authority of Advance Rulings or an income tax officer under Section 197 to ascertain their tax liability.

Capital gains

On Tuesday it was reported that Flipkart founders Sachin and Binny Bansal might have to pay a 20 percent capital gains tax if they sell their shares in the company as part of a deal with US retail giant Walmart.

According to experts, there would be two taxation angles to the deal once it goes through. The first will be the taxation of capital gains earned by the sellers (Flipkart investors). Secondly, whether Flipkart India is allowed to carry forward the losses for the adjustment against income tax payable by the company.

Nangia & Co Director Chirag Nangia told the PTI that the taxability of the foreign investors in Flipkart will depend on the country through which the money is routed and whether India has a tax treaty with those nations. "However, if the Indian promoters of Flipkart India intend to sell their shareholding, being Indian residents, they would be liable to pay income tax in India on capital gains arising from such transaction," Nangia said.

Transaction Square Founder Girish Vanvari told the news agency that the I-T law provides that taxes have to be withheld by the buyer if the share purchase agreement is being entered into with a non-resident entity. "With regard to share purchase agreement entered into with India resident entity, Sachin Bansal and Binny Bansal in this case, capital gain would be charged in their hands and they have to pay 20 percent income tax," Vanvari said.

With inputs from PTI

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