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SABMiller Faces Indian Tax Claim On Offshore Transaction

by Mary Swire,, Hong Kong

07 December 2009

The Indian Income Tax Department will serve a "show-cause notice" on SABMiller India to request why capital gains tax was not withheld on the sum of USD120m paid to Foster’s Australia on the purchase of Foster’s India in 2006, according to an Indian Economic Times report.

This follows a similar notice served on Vodaphone in October in respect of a capital gains tax claim of USD2bn, and a successful capital gains tax adjudication against E*Trade Mauritius earlier this year for USD50m. The claim on SABMiller's could be in excess of USD10m.

Both SABMiller and Foster's contend that the sale of Foster's involved offshore assets outside the jurisdiction of the Indian tax authorities and moreover, SABMiller regard the transaction as Foster's Australia's sole responsibility as the beneficiary of the capital gain.

Foster's Australia has been fighting the claim unsuccessfully through the Authority for Advance Ruling (AAR) process, where it was ruled that, although the assets in question included a high proportion of intangible brand and patent values, they were nevertheless Indian business assets and therefore subject to Indian tax. Foster's is continuing to follow appeal procedures, the next of which is scheduled for the Delhi High Court in January 2010.

Since the legal principles involved in the much larger Vodaphone tax claim are very similar, in that neither Vodaphone nor SABMiller were beneficiaries of the capital gain, SABMiller may have to watch that process play out before reaching a conclusion on its own case. At present Vodaphone is seeking more time, at least until January, to respond to its own show cause notice and continues to express its confidence that it is not liable.

A similar tax demand is in the pipeline in respect of the Idea-Cellular AT&T acquisition.

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