Retail giant Walmart paid Rs 7,439 crore tax on payments it made to buy out shares of 10 major shareholders of Flipkart.
But there are still another 34 shareholders for which Walmart has not paid yet, in this 16 million USD deal.
The Government Say
“Of the 44 shareholders in Flipkart who have sold shares, Walmart has deposited taxes for only 10 funds and entities. We have asked Walmart to explain the rationale followed while deducting or not deducting taxes from the shareholders. They have been asked to give a case to case explanation,” a tax department official said.
a Walmart spokesperson said: “We take our legal obligations seriously, including paying taxes to governments where we operate.”
“Following our Flipkart investment, we have completed our tax withholding obligations under the guidance of the Indian Tax authorities. We will continue to work with authorities to respond to their queries,” the spokesperson said without elaborating.
As per industry resources, Walmart may have followed the withholding tax provision for small investors in not deducting tax on payments made to them.
Types of Shareholding
There are primarily 3 kinds of shareholders in Flipkart, Indian residents, foreign residents with more than 5% shareholding and foreign residents with less than 5% shareholding. Legally, Walmart is not required to withhold tax on payments made to shareholders with the less than 5% shareholding.
“It is imperative to note that Walmart’s liability to withhold tax arises only if the underlying capital gain is liable to tax in the hands of the shareholder under the provisions of the Act read with the relevant tax treaty. Accordingly, there is a possibility that some of the shareholders fall within the ambit of Explanation 7, thereby absolving Walmart of any liability to withhold tax at source,” Nangia Advisors LLP Managing Partner Rakesh Nangia said.
The Bilateral Tax Treaty
Walmart Inc. had completed the acquisition of a 77 percent stake in Flipkart for about USD 16 billion in mid-August.
Walmart is liable to deduct withholding tax on payments made to sellers and deposit the same with the Indian government by the 7th of September.
As per the provisions of the I-T law, Walmart had to deduct withholding tax on payments made to sellers and deposit it with the Indian authorities on the seventh day of the subsequent month, which in this case is September 7. 20% tax is levied for shares sold by foreign investors after 24 months of purchase, as per the domestic law. The income tax department also provides a rebate in taxation at a lower or nil rate if the taxpayer is eligible for benefits under double taxation avoidance agreement between his country (from where the investment was routed) and India. This section is currently under scan if the bilateral taxes treaties with countries like Mauritius and Singapore could be available for investors selling stakes to Walmart.