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India Slaps Tax Bill On London-Listed Brewer

by Mary Swire,, Hong Kong

14 April 2011

A London-listed brewer, SABMiller, has become the latest victim of the Indian Tax Office, which has demanded USD39.5m in retrospective tax on the group’s 2006 purchase of Indian assets from the Australian brewer Foster’s.

The case has striking similarities with the USD2.5bn tax bill handed to Vodafone after the company purchased a stake in Hutchison Essar. This is currently being contested in the Indian courts. The tax demand also justifies the concerns of many companies across the globe keen for a slice of the potentially huge Indian market, but which are concerned about the unpredictability of doing business in India and its ever-changing tax policies.

SABMiller’s acquisition of the brewery in Maharashtra and Foster’s brand in India has helped it become the second largest brewer in the country.

The case will be going before the Mumbai High Court and Foster’s says that is confident of its position. SABMiller’s argument is that tax is not liable on a transaction between two non-resident parties. The Indian Tax Office says that tax is liable if the business pertains to the local market.

It was less than a fortnight ago that India’s Commerce Ministry relaxed rules governing foreign direct investment (FDI) after more than 15 years, so that foreign companies can establish fully-owned subsidiaries in India without having to gain the permission of their Indian partners.

A Circular issued by the Ministry of Commerce and Industry on March 31 stated that the government had decided to abolish the condition of prior approval in cases of existing joint ventures and technical collaborations in the ‘same field' to "promote the competitiveness of India as an investment destination and be instrumental in attracting higher levels of FDI."

TAGS: court | tax | business | India | law | mergers and acquisitions (M&A)

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