Tax dept to seek share purchase pact from Flipkart to ascertain tax liability

The department currently is going through the Section 9(1) of the Income Tax law, 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.

To ascertain the exact tax liability, the revenue department will write to Flipkart seeking the share purchase agreement that the company had entered into with Walmart.

"The department will seek the share purchase agreement once the formalities for the sale are completed. The agreement will help in tracking the flow of funds and the ultimate beneficiary," the official said.

As regards applicability of General Anti Avoidance Rules (GAAR), the official said it would apply in cases where the investments were made to avoid taxes. In the Walmart-Flipkart deal, the revenue department will go through the share purchase agreement to ascertain the purpose of investment and the emanating gains.

On whether the benefits of bilateral tax treaties will be available in this deal, the official said the department will go through the details of different double taxation avoidance agreements (DTAAs) to ascertain whether taxes could be levied at concessional rate and investment made prior to a particular date can be grandfathered.

"There is likely to be capital gains withholding tax implications when the shares of Flipkart Singapore are sold by Softbank or other foreign investors. The tax rate will depend upon the facts of the case," V Lakshmikumaran, Managing Partner of law firm Lakshmikumaran & Sridharan said.