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Published On: Thu, May 10th, 2018

I-T writes Walmart, Flipkart on tax liability over USD 16 billion deal

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Flipkart-Walmart-770x433NEW DELHI : The income tax department has sent a communication to Walmart Inc and Flipkart on the M&A deal apprising them about the sections of the I-T Act that would apply to the transaction.
It has been told to Walmart that since the company (Flipkart) derives a substantial value of its shares from the assets held in India, it would be liable for taxation in the country, as per  reports. The deal between Walmart and Flipkart would be applicable for withholding tax and capital gains tax, among others.
The IT department has also asked Flipkart about details of the USD 16 billion (Rs 1.05 lakh crore) deal. Walmart Inc on Wednesday had announced acquisition of 77 per percent in Flipkart, in the largest e-commerce deal which will give the US retailer access to the Indian online market that is estimated to grow to USD 200 billion within a decade.
The deal, under which co-founder Sachin Bansal and Japan’s Softbank Corp Group are exiting, values Flipkart at USD 20.8 billion.Flipkart, which was launched in 2007, will get additional capital and expertise to battle Amazon, which has spent billions of dollars  to gain customers in the country. Flipkart has 34 percent market share while Amazon controls 27 percent of India’s online sales.
Walmart runs 21 Best Price wholesale stores in the country that sell everything from fast-moving consumer goods to furniture to other retailers and institutions. The deal would bring over 175 million users to Walmart.
India’s retail policy that does not allow overseas companies to sell directly to consumers (except in wholesale cash-and-carry segment). Companies like Flipkart and Amazon operate as e-commerce marketplaces, a segment that allows 100 per cent foreign direct investment (FDI).
The deal is subject to regulatory approvals including Competition Commission of India and is expected to close later in 2018.Flipkart co-founders Binny Bansal and Sachin Bansal could be subject to 20-30 percent capital gains tax after their deal with Walmart goes through.
The Walmart deal will make Sachin Bansal richer by USD 1.04 billion (approximately Rs 7,006 crore), while Binny Bansal, by virtue of his partial exit, will take home USD 104 million ( approximately Rs 700 crore). Sachin Bansal, who announced his exit from the company, had said in a Facebook post that it was time to hand over the baton and move on.
Nitesh Mehta, Partner/Transaction Tax, Tax and Regulatory Services, BDO India explained that while long term and short term capital gains tax are 10 percent and 15 percent, respectively, these rates only apply to listed entities.”Since Flipkart is an unlisted company, the tax rate would be 20 to 30 percent,” Mehta said.
(With Agency inputs)

 

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