Flipkart investor attempted tax avoidance during stake sale: Report

A stake sale by a Flipkart investor in 2018 was done in a manner to avoid tax, the Authority of Advance Ruling (AAR) said.

A private equity (PE) investor in Flipkart sold its stake to Walmart for Rs 14,500 crore through a company based in Mauritius, according to a report by The Economic Times.

The US-based PE firm approached the AAR after the income tax (I-T) department had said Walmart should not be asked to withhold tax on payment.

Moneycontrol could not independently verify the story.

In May 2018, US retail giant Walmart acquired a roughly 77 percent stake in Flipkart for $16 billion.

The decision by AAR Mumbai could make tax authorities examine other transactions routed through Mauritius that sought tax exemptions for transactions made before 2016 through the grandfathering clause, The Economic Times reported.

The India-Mauritius Double Tax Avoidance Agreement (DTAA) was amended in 2016 to curb misuse of the tax treaty.

The report did not specify the name of the PE player, but stated that it is a major firm.

The PE firm can now approach the high court and appeal against the AAR's judgement, or the I-T Appellate Tribunal, the report said.

"The government should do away with the proviso under section 245R(2) which allows AAR to reject applications if it's prima facie found that the transaction or issue was designed to avoid tax," Amit Maheshwari, a partner at law firm Ashok Maheshwary & Associates LLP, told the paper.