Says Shantha Buy Can Be Taxed Only In France, No Impact Of Retro Amendment
Hyderabad: In a major respite for Sanofi Aventis, the Andhra Pradesh High Court on Friday said that the company will not have to cough up capital gains tax of Rs 1,000 crore and an equivalent amount as penalty that was slapped by the Income Tax authorities in 2010 on the French pharmaceutical giant’s acquisition of Hyderabad based Shantha Biotech in 2009.
Quashing the Indian I-T department’s tax demand on the grounds that it was unsustainable, the tax bench of Andhra Pradesh HC comprising justices Goda Raghuram and M S Ramachandra Rao ruled that according to the provisions of the double taxation avoidance agreement (DTAA) between France and India, the transaction is taxable in France and not in India.
Justice Raghuram said that the retrospective amendments to the Income Tax Act, 1961, vide the Finance Act, 2012, have no impact on the interpretation of DTAA and the tax arising out of the deal was to be paid in France.
Apart from Sanofi Aventis, three of its subsidiaries — Merieux Alliance, ShanH and GIMD — were also involved in the case. Sanofi Aventis had acquired Shantha Biotechnics for around Rs 3,800 crore through a complex transaction in 2009. Sanofi had acquired ShanH, which held a majority stake in Shantha Biotechnics. ShanH, the French subsidiary of Merieux Alliance, had bought a majority stake in Shantha Biotechnics in November 2008.
The I-T authorities had demanded a capital gains tax of Rs 1,000 crore on the deal on the grounds that Sanofi had created a puppet company to evade taxes, with ShanH being incorporated by Sanofi just six days before the Shantha Biotech buyout deal was inked.
However, in its ruling, the HC bench said: “ShanH is an independent corporate entity registered and based in France. It has a commercial substance and a purpose (FDI in Shantha Biotech) and is neither a mere nominee of other French companies nor is a device for tax avoidance. Since inception in 2006 till date, ShanH had acquired and continues to hold Shantha Biotech shares.”
The AP HC held that the capital gain arising as a result of the transaction was liable to be taxed but in France and not in India under the double taxation avoidance agreement between the two countries.
While the I-T department has contended that the transfer of capital assets had resulted in capital gains and the stakeholders had came under the jurisdiction of the Indian income tax norms, Sanofi had challenged the I-T claim in 2010 saying it had already paid tax for the acquisition in France under French law and paying tax again in India would amount to double taxation.
BOOSTER SHOT
• Sanofi Aventis had acquired Shantha Biotechnics for around 3,800 crore through a complex transaction in 2009.
• Apart from Sanofi, three of its subsidiaries were involved in the deal.
• I-T authorities demanded a capital gains tax of 1,000 crore and an equivalent amount as penalty on the ground that Sanofi had created a puppet company to evade taxes Shell wants UK PM to intervene Oil company Royal Dutch Shell has asked the British government to raise the subject of a tax dispute with India during Prime Minister David Cameron’s visit to the country next week, according to a source familiar with the request.
The dispute blew up earlier this month when tax authorities revalued by $2.7 billion a 2009 transaction by Shell with a wholly owned subsidiary, and claimed a tax payment was due.
The Anglo-Dutch oil group’s run-in with tax officials follows a long-running $2 billion Indian tax claim on Vodafone. REUTERS
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