It was announced earlier that Walmart had completed the acquisition of 77% stake in Flipkart for a consideration of $16 billion. The tax implication on this deal has also been widely discussed.
Now it transpires that the Income Tax officials are yet to hear from Walmart on the exact actions it has taken to deduct the tax and with September 7 being the last date for making the deposit of the tax deducted, the department has said, as per a PTI report, that it will wait till the due date passes before taking any step.
Earlier there were reports suggesting that the Indian Income Tax authorities wrote to Flipkart and Walmart advising them that withholding tax was payable by the acquirer and Walmart must deduct the amounts from the stake holders from whom it is buying shares and deposit it with the government. The department offered its help in arriving at the liability if there were any doubts.
In May Flipkart is reported to have submitted a copy of the sale agreement from which it was made out that there were 44 shareholders selling their stakes in Flipkart, the largest one obviously being SoftBank Japan. Besides the Japanese investor, Naspers, venture fund Accel Partners and eBay as well as the Co-founder Sachin Bansal are the other key shareholders exiting partially or fully from the ecommerce firm.
Under the Indian tax laws, if there is a liability and the seller fails to deposit the tax collected during the month, then interest becomes payable for the days defaulted/delayed beyond the due date, which is the 7th of the succeeding month.
The only grey area appears to be the exact tax liability that the sellers of shares have to bear under the double taxation treaty that the Indian government has entered into and this is particularly relevant for the entities registered in countries like Singapore and Mauritius. Flipkart Pvt Ltd itself is a Singapore registered entity.
In the normal course, one would have expected Walmart to have gone through the process of computing how much amount it is withholding and submit it to the IT department which would then scrutinse and confirm if it tallies with its own assessment of the liability and then the formalities would have been completed. Sellers among the 44 shareholders would also have by this time approached the department with their requests, if they felt they deserved any exemption on any ground and even this has not occurred so far.
One may have to wait out the next four days to now how it plays out in this high-profile takeover case in the Indian context.