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Walmart didn't pay taxes on Flipkart shares from 34 shareholders: I-T dept

Walmart has paid Rs Rs 74.39 billion withholding tax on payments made to 10 major shareholders of Flipkart

Press Trust of India  |  New Delhi 

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US paid Rs 74.39 billion tax on payments it made to buy out shares of 10 major shareholders of but has not yet done so for another 34 who exited the Indian company in the $6 billion deal, tax officials said.

As many as 44 shareholders of Flipkart, including significant ones like SoftBank, Naspers, venture fund and eBay, had sold their holdings to

on September 7, the last date for depositing taxes with the Indian authorities, paid Rs Rs 74.39 billion withholding tax on payments made to 10 shareholders of

"Of the 44 shareholders in 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 said.

Withholding tax, or retention tax, is an income tax to be paid to the government by the payer of the income rather than the recipient of the income. The tax is withheld or deducted from the income due to the recipient.

In case of the Walmart-Flipkart deal, the withholding tax pertains to the capital gains made by the shareholders of Flipkart.

Responding to an e-mail query by PTI, a Walmart 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 said without elaborating.

Industry sources said Walmart may have followed the withholding tax provision for small investors in not deducting tax on payments made to them.

Flipkart shareholders can broadly be divided into three categories -- foreign investors whose holding is more than 5 per cent, foreign investors withholding less than 5 per cent and Indian residents.

Walmart is legally not required to withhold tax on payments made to foreign shareholders with a stake of less than 5 per cent and no right to management, they said.

said I-T Act's Section 9(1)(i) read with Explanation 5 and 6, that is the Indirect Transfer Provisions, impose capital gain tax liability on the foreign shareholder holding shares in

However, Explanation 7 to Section 9(1)(i) carves out the applicability of Explanation 5 to small investors holding no right of management or control of such company and holding less than 5 per cent of the voting power/ share capital/ interest of the company that directly or indirectly owns the assets situated in

"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 said.

Certain shareholders of Flipkart had last month approached the tax department seeking exemption from levy of the taxes. Their application is still being studied by the I-T department.

"We are still studying the exemption application filed by some shareholders of Flipkart. We have not yet decided on granting or not granting exemption or lower tax rate for them," the said.

The Income provides for a buyer to seek withholding tax certificate from authorities after providing details of the transaction and make a case for availing lower or nil tax rates. The tax rate could be lower in case the non-resident seller invokes the provision of the double tax avoidance agreement.

US had on September 7 said it has complied with the tax obligations of its $16 billion acquisition of India's largest Flipkart but did not say the quantum of taxes it paid.

had completed the acquisition of 77 per cent stake in Flipkart for about $16 billion in mid-August. 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.

As per domestic tax law, long-term capital gains tax is levied at 20 per cent for shares sold by foreign investors after 24 months of purchase.

However, the I-T law also provides for a taxpayer to pay taxes at a lower or nil rate if he is eligible to claim the benefits under the double taxation avoidance agreement between and the country from where the investment was routed.

The I-T department has been reviewing Section 9 (1) of the I-T Act, which deals with indirect transfer provisions, to see if the benefits under the bilateral tax treaties with countries like and could be available for foreign investors selling stakes to Walmart. Singapore-registered Ltd holds a majority stake in

First Published: Sun, September 16 2018. 11:35 IST