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

Walmart runs 21 Best Price wholesale stores in India that sell everything from fast-moving consumer goods to furniture to other retailers and institutions.

Representational image (Pic courtesy: Reuters)

New 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 Zee Media reports. The deal between Walmart and Flipkart would be applicable for withholding tax and capital gains tax, among others.

The I-T department has also asked Flipkart about details of the USD 16 billion (Rs 1.05 lakh crore) deal. 

Walmart Inc on Wednesday had announced the acquisition of 77 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.

Facts about the biggest M&A deal in India in 2018:

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. So far it had been handicapped by 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 percent foreign direct investment (FDI).

Binny Bansal, who had co-founded Flipkart with Sachin 11 years ago, will retain some of his 5.5 percent stake in India's biggest online retailer and will be chairman of the company's Board. Walmart and Flipkart will remain separate brands and the Indian e-commerce company will have an independent board, which will be revamped to give representation to the US firm.

Tencent Holdings Ltd, Tiger Global Management and Microsoft Corp will also continue to remain shareholders in Flipkart, Walmart said without divulging their stake, PTI reported. Japan's SoftBank Group Corp sold its 20 percent stake, which it had acquired for USD 2.5 billion, for about USD 4 billion. South African internet and entertainment firm Naspers, which had invested USD 616 million in Flipkart in August 2012, sold its entire 11.18 percent stake in the company to Walmart for USD 2.2 billion. Pre-deal, Tiger Global Management held about 20 percent stake in Flipkart.

The deal is subject to regulatory approvals including Competition Commission of India and is expected to close later in 2018.

(With Agency inputs)