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Tax dept to seek share purchase pact from Flipkart to ascertain tax liability

Monday, May 14, 2018
The tax department will seek share purchase agreement from Flipkart on the mega USD 16 billion buyout by US retail giant Walmart to assess the tax liability and also to find out whether the GAAR provisions can be invoked, an official said.
 
The department currently is going through the Section 9(1) of the Income Tax law, which deals with indirect transfer provisions, to see if the benefits under the bilateral tax treaties with countries like Singapore and Mauritius, could be available for foreign investors selling stakes to Walmart. Singapore-registered Flipkart Pvt Ltd holds majority stake in Flipkart India. As per the definitive agreement between the companies last week, Walmart will acquire about 77% stake in the Singapore entity for USD 16 billion. The agreement will effectively result in transfer of ultimate ownership in Flipkart India to Walmart.
 
To ascertain the exact tax liability, the revenue department will write to Flipkart seeking the share purchase agreement that the company had entered into with Walmart.
 
"The department will seek the share purchase agreement once the formalities for the sale are completed. The agreement will help in tracking the flow of funds and the ultimate beneficiary," the official told PTI. As regards applicability of General Anti Avoidance Rules (GAAR), the official said it would apply in cases where the investments were made to avoid taxes.
 
In the Walmart-Flipkart deal, the revenue department will go through the share purchase agreement to ascertain the purpose of investment and the emanating gains. On whether the benefits of bilateral tax treaties will be available in this deal, the official said the department will go through the details of different double taxation avoidance agreements (DTAAs) to ascertain whether taxes could be levied at concessional rate and investment made prior to a particular date can be grandfathered.
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