After I-T letter, Walmart assures tax compliance in Flipkart deal

NEW DELHI: Walmart has told the Indian tax authorities it will pay the taxes that are due on its acquisition of Indian ecommerce company Flipkart.

The company has said it will get the tax implication of the deal examined.

The tax authorities had written to the world’s biggest retailer on India’s provisions and that it could approach the department for any clarification. ET had first reported this on May 9.


“They have said whatever is the regulatory requirement they will fulfil,” an official aware of the development told ET.

Flipkart has already responded to the I-T authorities in Bengaluru.

Walmart said it would comply with all requirements.

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

The US retailer has sought approval of the Competition Commission of India (CCI) for the Flipkart acquisition. The transaction is expected to close by the end of the calendar year.

Income-tax authorities are keeping close tabs on the transaction and had written to Walmart and Flipkart even before the official announcement on May 9, seeking details. Walmart has said it’s acquiring about 77% of Flipkart for $16 bn.

The tax officials offered assistance in the letter to the Indian subsidiary of the US retailer if needed in determining the tax liability and informed it of the tax laws on indirect transfers.

It is mandatory for all entities, resident and non-resident, having a business connection in India to withhold tax even if a transaction is executed on foreign soil but the underlying asset is Indian. This is subsequent to the amendment on indirect transfers that was introduced in Section 9(1)(i) of the Income Tax Act as part of the 2012 budget.

That move followed a setback for the government in the Supreme Court in January 2012, when the verdict went in favour of Vodafone. Income-tax authorities had made a significant tax claim on the phone company’s 2007 deal with Hutchison Whampoa to buy a majority stake in its local telecom subsidiary, levying this on the indirect transfer of an Indian asset. The withholding tax rate in the case of long-term capital gains tax is 10-20% depending on the nature of the investment.