Walmart income tax liability in Flipkart deal: What MNC may do in India

US-retail major Walmart may approach Indian authorities seeking withholding tax certificates for determining the tax liability in the USD 16 billion Flipkart buyout deal.

Following CCI's nod to the Walmart-Flipkart deal, the I-T department expects Walmart to approach it under Section 197 of the Income Tax Act within a fortnight.

"We were told that the deal would be closed within a week of the Competition Commission of India (CCI ) approval. So we expect them to file with the I-T authorities seeking withholding tax certificate under Section 197 within a fortnight," an I-T official said.

Under Section 197, any NRI selling shares can give reasons to Indian authorities as to why they should be taxed at a lower or nil rate in India.

Walmart last month assured the I-T department that it will fulfil all tax obligations.

"We take seriously our legal obligations, including the payment of taxes to governments where we operate. We will continue to work with Indian tax authorities to respond to their inquiries," Walmart said in a statement.

Bengaluru-based e-commerce major Flipkart had in May shared share purchase agreement with tax authorities, and I-T department is currently calculating the tax rate that would be applicable for investors in Flipkart who are selling the shares to Walmart.

The I-T department is going through the share purchase agreement, reading in depth which investor has routed money from which jurisdiction and when and whether any treaty benefit apply to them,? the official added.

Nangia Advisors LLP Managing Partner Rakesh Nangia said lower or nil withholding tax order obtained under Section 197 before making payment to Flipkart shall act as a provisional assessment of the transaction.

The payee can represent the case before tax authorities to determine the withholding tax implication on the transaction and the payer has to consider the lower/nil withholding tax order at the time of making payment to Flipkart, Nangia said.

Walmart on May 9 had announced that it will pay approximately USD 16 billion to buy about 77 per cent stake in Flipkart.

Significant shareholders in Flipkart, like SoftBank, Naspers, venture fund Accel Partners and eBay, have agreed to sell their shares. Also co-founder Sachin Bansal would be selling his stake to the US retail major.

The 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 Singapore and Mauritius, could be available for foreign investors selling stakes to Walmart. Singapore-registered Flipkart Pvt Ltd holds majority stake in Flipkart India.

In May, the I-T department had written to Walmart, saying that the US company can seek guidance about the tax liability under Section 195 (2) of the I-T Act.

Under Section 195 of the Act, anyone making payment to non-residents is required to deduct tax (commonly known as withholding tax).