New Delhi, May 12, 2018

The income tax (I-T) department has sent a letter to US retail giant Walmart at its Bengaluru office saying it was “welcome” to approach the tax department for any clarification with regard to computing the withholding tax liability for its acquisition of stake in Flipkart.

The letter came after Walmart announced the acquisition of 77% stake in the online retailer in a $16-billion deal. “Though Flipkart is liable for capital gains tax on the stake sale, we have not sent any communication to them as it is obligatory for an Indian entity to pay tax as due,” a senior tax official said.

The decision to send a letter to Walmart was to sensitise the company of tax implications in India for any merger and acquisition. It was also sent to ensure the company did not feign ignorance and dispute it at a latter date, the official explained. The official said the letter was just a communication and not an I-T ‘notice’.

The tax official said Walmart could approach the department under Section 195 (2) of the I-T Act to determine its withholding tax liability. Withholding tax ranges from 10-20% on any long-term capital gains which the buyer has to hold back before making all payments. After a fiasco in the Vodafone tax demand case, the previous UPA government had introduced a provision in the Finance Act, 2012, where the law made it mandatory for all persons, whether resident or non-resident, having a business connection in India, to withhold tax even if a transaction was executed on foreign soil if the underlying asset was Indian.

[The Times of India]