The biggest deal in the Indian e-commerce history is proving to be the toughest as well. Although Walmart has done the lengthy acquisition process amidst protest and allegations, it has been facing tax regulatory terms and conditions without any leeway.
The US-based retail giant was strictly asked to deposit about $2 billion withholding tax before September 7. The firm had accepted the terms and condition and reportedly deposited Rs 7,439.40 crore as a retention tax.
The withholding tax is an amount, which is first deducted at source and paid in advance by a buyer.
Now, IT department has asked to provide tax break up of the amount to know the actual tax deducted from payments to each shareholders. The next deadline for Walmart to fulfil the tax break up detail is September 17.
The matter cropped up when Flipkart shareholders including SoftBank, Naspers and Accel Partners sold their stakes to Walmart. Further, Singapore, where Flipkart’s parent entity is registered has a complex investment structure and many stake holders might claim that they are exempt under the India-Singapore double tax avoidance treaty.
As per Section 9(1) of the Income Tax Act, if any foreign entity has more than 50 per cent of its assets in India, it will be considered an Indian entity and has to be taxed as per the local laws.
Also the Flipkart-Walmart deal comes under the General Anti Avoidance Rule (GAAR). The tax official has clarified that there is no escape from GAAR for Flipkart which is applicable from AY 2018-19 (FY 2017-18) and Flipkart seeking tax benefit in capital gains for AY 2019-20 (FY 2018-19).
According to a Walmart spokesperson, the company has complied with all the regulatory norms tabled by the tax department and has completed the tax obligation.
The development was reported by TOI.