Taxman Expects Walmart To Share Flipkart Deal Tax Liability Details

The taxman expects retail giant Walmart Inc to file withholding tax certificates within 15 days of closing the deal to acquire 77 percent stake in Indian online retailer Flipkart, a senior government official said.

The certificate would determine the capital gains tax liability of Walmart that would arise from the acquisition, valued at $16 billion. The Competition Commission of India gave its nod to the acquisition on June 8.

A withholding tax is an income tax to be paid to the government by the payer of the income—in this case Walmart—rather than by the recipient—Flipkart. The tax is withheld or deducted from what is due to the recipient.

Walmart is expected to approach the government for filing withholding certificate under Section 197 of Income Tax Act, the official said.

According to the section, when a certificate is given, the person responsible for paying the income shall deduct tax according to the rates specified in the certificate. Any non-resident Indian selling shares can give reasons for being taxed at a lower or nil rate in India to tax authorities.

Flipkart’s parent entity is registered in Singapore. Many of Flipkart's investors who sold their stake to Walmart are non-resident Indians.

As per the Indian withholding tax provisions, Walmart will be liable to deduct applicable income tax on payments made to non-resident seller entity while purchasing shares in Flipkart Singapore or Flipkart India, Rakesh Nangia, managing partner at Nangia Advisors LLP, told BloombergQuint.

Nangia said that in case the parties believe this transaction isn’t liable to income tax in India due to tax treaty benefits, the purchaser or seller may approach the Indian tax authorities for obtaining a nil or lower withholding tax order. An assessing officer can grant relief if satisfied that the existing and estimated tax liability of a person will be lower and the assessee provides grounds for it, Nangia said.

The lower or nil withholding tax order obtained under section 197 shall act as a provisional assessment of the transaction between Walmart and Flipkart’s shareholders, said Nangia in an emailed statement.

Flipkart’s shareholders can represent the case before the tax authorities to determine the withholding tax implication and Walmart shall be liable to consider the lower or nil withholding tax order at the time of making payment to the shareholders, Nangia said.

In case the world’s largest retailer does not approach the tax department, the taxman may itself contact the company for it.

Responding to BloombergQuint’s emailed queries, a Walmart spokesperson said, “We take our legal obligations, including the payment of taxes to governments where we operate, seriously.” The company will continue to work with Indian tax authorities to respond to their inquiries, the spokesperson said.

Flipkart has already shared the purchase agreement with the income tax department, which is being examined, the official quoted earlier said.