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Withholding tax reprieve

At a concall with analysts on Monday, Holcim CEO Jan Jenisch claimed that the transaction will not attract capital gains tax
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Our Special Correspondent   |   Mumbai   |   Published 17.05.22, 01:54 AM

The mega deal between Gautam Adani and Holcim for the Swiss giant’s Indian assets may escape the spectre of withholding tax, which brought giants such as Vodafone group in its crosshairs.

On Sunday, the Adani group announced that the promoter family through an offshore special purpose vehicle has entered into definitive agreements for the acquisition of Holcim’s entire holding in Ambuja Cements and ACC. The acquisition led to questions on whether Adani will have to set aside a sum as withholding tax.

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At a concall with analysts on Monday, Holcim CEO Jan Jenisch claimed that the transaction will not attract capital gains tax. “According to our analysis it is a tax-free transaction,’’ he said without giving further details.

The Adani group will acquire Holcim’s stake via Endeavour Trade and Investment Ltd, a Mauritius based entity.

It entered into a share purchase agreement with Holderfin B.V, a company incorporated in the Netherlands for the purchase of 100 per cent of Holderind Investments Ltd.

Holderind has a 63.18 per cent stake in Ambuja Cements and 4.48 per cent stake in ACC. Ambuja Cements holds 50.05 per cent in ACC.

However, since the 100 per cent in Holderind will be acquired from the Netherlands-based Holderfin BV, the India-Dutch tax treaty provisions could kick in, thereby providing the withholding tax relief.

According to a BQPrime report, the sale of shares by Holderfin in Holderind will come under Article 13 (5) of the India-Netherlands DTAA due to which tax liability, if any, will arise only in the Netherlands and not in India. It also overrides Section 195 of the Income Tax Act which deals with tax deducted at source for payments made to non-resident.

Earlier, the authorities had sought taxes from Vodafone citing an October 2010 order that demanded over Rs 11,000 crore over its 2007 acquisition of Hutch-Essar through a deal in the Cayman Islands.

The Supreme Court in January 2012 quashed the tax demand but it was sought to be revalidated through Section 119 in  Finance Act, 2012.

Vodafone challenged the levy, which was overturned by an international arbitration tribunal. Earlier, the authorities had sought taxes from Vodafone by validating an October 2010 order  that sought over Rs 11,000 crore in taxes over its 2007 acquisition of Hutch-Essar through a deal in the Cayman Islands.

The Supreme Court had in January 2012 quashed the tax demand but it was sought to be revalidated through Section 119 in the Finance Act, 2012 Vodafone had challenged the levy of these taxes after the 2012 legislation at an international arbitration tribunal which had overturned the levy.

The Government had last year enacted a legislation to drop any tax demand levied on companies using the controversial 2012 amendment to the Income Tax Act, that gave taxmen powers to go back several years and slap capital gains levies where ownership had changed hands overseas but business assets were located in India. This was used to raise tax demand against MNCs like Vodafone and Cairn among others. Later in October 2021, the Government notified rules for settling such cases.

Earlier, the authorities had sought taxes from Vodafone by validating an October 2010 order that sought over Rs 11,000 crore in taxes over its 2007 acquisition of Hutch-Essar through a deal in the Cayman Islands. The Supreme Court had in January 2012 quashed the tax demand but it was sought to be revalidated through Section 119 in the Finance Act, 2012 Vodafone had challenged the levy of these taxes after the 2012 legislation at an international arbitration.



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