The Income Tax Department waits until September 7 for the liquidation of withholding tax by Walmart on payments to approximately 44 shareholders who leave Flipkart e-commerce firm before it ends up in the case, an official said.
US based retail giant Walmart Inc had completed a 77 percent acquisition in Flipkart in mid-August for a deal of about USD 16 billion. According to the provisions of the I-T Act, Walmart must withhold withholding taxes on payments to sellers and deposit them with the Indian authorities on the seventh day of the following month, which falls on 7 September.
The Walmart has not yet approached the tax authorities to determine the withholding tax, although some Flipkart shareholders who leave the e-commerce company have sought advice on their tax liability, the officials said.
Under Article 197, the seller of shares may obtain a withholding tax certificate from the tax authorities after having provided details of the transaction and claiming the use of lower or zero tax rates. The tax rate may be lower in the event that the non-resident seller invokes the provision of the double tax avoidance agreement.
"Walmart still has until 7 September to deduct withholding tax and to pay to about 44 different shareholders of Flipkart," said the official, and adding the department can only continue in this case if the deadline for payment of taxes is over.
Once the withholding tax has been paid, the tax authority will investigate whether Walmart has correctly paid the taxes in accordance with the assessment by the tax authorities on the basis of the share-purchase agreement that Flip Tai has shared with Bengaluru.
However, if the Walmart fails to deposit the correct amount of taxes, the Walmart Department will ask for details on deducted taxes and the reasons why the required amount has not been deposited.
Nangia Advisors LLP Managing Partner Rakesh Nangia said: "If Walmart is liable to tax, it would not involve appropriate tax implications under Section 201 of the IT Act, meaning that Walmart will be interpreted as an" assessee in default "which must pay interest and penalties due to non-withholding and charging the correct taxes on the government's account".
"The question arises as to the possible reason behind Walmart's strategy not to approach the tax authorities to obtain a lower / zero withholding tax under Article 197. Although the order under section 197 acts as a preliminary assessment of the transaction between Walmart and Flipkart shareholders, it is not a retrievable order. "
Walmart had assured the I-T department in July that it would meet all tax obligations. Flipkart had shared share purchase agreements with tax authorities in May, on the basis of which the I-T department assessed the tax rate that would apply to investors in Flipkart who sell the shares to Walmart.
Considerable shareholders in Flipkart, such as SoftBank, Naspers, the venture fund Accel Partners and eBay, have agreed to sell their shares. Co-founder Sachin Bansal has also decided to sell his stake to the US retail major.
The department revised section 9 (1) of the I-T Act, which deals with indirect transfer provisions, to see if the benefits of the bilateral tax treaties with countries such as Singapore and Mauritius can be available to foreign investors who sell rings to Walmart. Singapore-registered Flipkart Pvt Ltd has majority interests in Flipkart India.
(This story is not edited by Business Standard staff and is automatically generated from a syndicated feed.)