INDIA BUSINESS WORLD - FEBRUARY 16th - FEBRUARY 29th - 2008
FOSTER’S INDIA’S SABMILLER DEAL UNDER I-T LENS
After serving notices to Vodafone on the $11-billion Hutch-Essar-Vodafone deal, the income-tax department has put the $120-million Foster’s India-SABMiller transaction under the lens.
The Pune office of the income-tax department has asked Foster’s India, a leading brewer which is now a part of the SABMiller group, to furnish details of the deal which was struck in 2006. Foster’s received notices from the tax department in mid-January.
SABMiller, the global beer major known for its Castle Lager brand, had taken over Foster’s India from its parent company, Foster’s Australia. The deal included the sale of the brand as well as assets of Foster’s India, including its brewery in Maharashtra. SABMiller, the British company, is among the largest brewers in the world and has presence in over 60 countries. It is a close competitor to Vijay Mallya’s UB group, which owns the Kingfisher brand of beer.
Sources said that the income-tax department is preparing grounds to issue a showcause notice to SABMiller, pursuing the same line it took for Vodafone, Netherlands. Vodafone was pulled up for not withholding the taxes payable to the Indian tax authorities before making payment to Hutch. Even though the deal was between two foreign entities and was struck overseas, it resulted in a change of ownership in an Indian firm. The decision had sparked a debate on whether claiming tax on such a transaction was within the purview of the department.
Sources said the notice to Foster’s India is only a prelude to a showcause notice to SABMiller. When contacted, a SABMiller spokesman said: “They (the income-tax department) have asked for some details of the shareholding pattern of Foster’s India. However, the case is entirely different from Hutch-Essar-Vodafone deal. Beer sector does not need any FIPB approval unlike the telecom sector. Besides, ours is entirely an overseas deal.”
Vodafone too had claimed that its deal with Hutch was an overseas transaction. Vodafone has approached the Bombay High Court to challenge the showcause notice. It has argued that the Indian income-tax authorities have no locus standi to claim tax on such a deal. The court is yet to give its verdict.
However, the department believes that since the profit is generated in India, it reserves the right to levy a tax on these profits. It plans to claim about $2 billion on the $11 billion dollar by way of tax. But Vodafone feels that though local authorities have every right to tax the income generated in India, the existing legal frame work do not provide for taxing an overseas transaction. The High Court’s decision on Vodafone petition is going to be crucial for the Income-tax department which is planning to bring under the tax net all recent cross-border mergers and acquisitions. The high court proceedings are also keenly observed by the international tax community as it can set a precedent for deciding similar issues in future.
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