SUMMARY
Walmart had paid $14 Bn to buy a 77% stake from the existing investors of Flipkart
Flipkart’s Singapore entity has a complex investment structure and the authorities want more details from Walmart
Walmart paid $1.02 Bn (INR 7,349.4 Cr) to the Indian income tax department as withholding tax for the Flipkart acquisition
After depositing $1.02 Bn (INR 7,349.4 Cr) with the Indian income tax (I-T) department as withholding tax for its Flipkart acquisition, US retailer Walmart might have thought its legal obligations in the deal are close to completion. However, the work has just started for the I-T department, which has sought further details of the amount deducted from payments to each selling shareholder.
The Walmart-Flipkart deal was announced in May and completed in August after a fair amount of back and forth between government departments and the companies. Walmart paid $14 Bn to buy a 77% stake from the existing investors of Flipkart and put in $2 Bn as fresh investment in the transaction.
Notably, Flipkart’s Singapore-based parent entity has a complex investment structure and the I-T department wants more details from Walmart on the amount of tax deducted from the various shareholders who sold their stakes.
It is to be noted that the tax amount may vary, depending on where the shareholders are based and whether that country has a Double Taxation Avoidance Agreement with India.
“The tax department is being proactive in checking the breakup of the tax withheld by Walmart. They want to understand whether taxes have been withheld properly or not and that is why they have asked Walmart for the list of the deductees from where they deducted tax,” Amit Maheshwari, a partner at chartered accountancy firm Ashok Maheshwary and Associates LLP, was cited as saying in a media report.
The tax authorities had set September 7 as the due date for depositing the withholding tax on the deal amount Walmart paid to the shareholders of Flipkart. In the Walmart-Flipkart deal, the withholding tax is related to the capital gains made by the shareholders of Flipkart.
According to the provisions of the Indian 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, was September 7.
Of the 44 shareholders of Flipkart who have sold stakes to Walmart, the significant ones include Tiger Global (16.99%), SoftBank (22.3%), Naspers (13.76%), Ebay (6.55%), Accel Partners (2.88%), Sachin Bansal (5.96%), Binny Bansal (1.63%), and others (6.93%).
Earlier in the year, Flipkart bought back shares from various investors and pared the number of investors to less than 50 to change the status of the company to a private one.
“We expect the ongoing operations of Flipkart to negatively impact fiscal 2019 and 2020 net income, including additional interest expense due to the long-term debt issuance in the second quarter of fiscal 2019,” Walmart said in its recent regulatory filing.
Flipkart has never been a profitable entity. For the financial year ending March 2017, the company’s losses increased by 68% to INR 8,771 Cr, in comparison to the INR 5223 Cr loss it incurred in FY16.
Thus, Walmart’s investment in Flipkart can be said to be a long-term bet, wherein the company has taken a chance in order to make its way into the ecommerce sector of India, which is expected to reach $64 Bn by 2020 and $200 Bn by 2026 from $38.5 Bn as of 2017, according to a June 2018 report by the IBEF.
[The development was reported by ET.]
