Will Halsim’s 6. 6.4 billion deal with Gautam Adani be a tax-free transaction?

Switzerland-based Holcim Group has said it will not pay any capital gains tax in India for the 6. 6.4 billion transaction to sell its stake in Adani Group.

Addressing an investor’s call, chief executive Jan Janish further said that the company would not pay compensation against the fines imposed on the two Indian cement companies by the competition watchdog and which is currently being sued in the Supreme Court.

“According to our analysis, this is a tax-free transaction,” Janish told analysts. “I don’t know if there are any complications, but we assume we will get 6.4 billion Swiss francs (about $ 6.4 billion) in net income.”

Tax officials told ET that India and Mauritius would renegotiate their bilateral tax agreement before 2017, and that Holcim would face a capital gains tax if it had acquired the partnership before 2017, while withdrawing capital gains tax exemptions available for investment from the island nation. There was no possibility. Ambuja Cement (then Cement) was acquired by Holsim Group, a Mauritius-based investment company, in January 2006 for ₹ 4,500 crore.

‘Assessing officer to make final call’

Prior to the 2017 Amendment, all transactions routed through Mauritius were made grandparents so that they could enjoy capital gains tax exemptions. A tax official said, “The assessment officer will make the final decision based on the merits of the case.” Adani Group is buying the two companies for 10.5 billion and Holcim’s stake in the deal is worth $ 6.4 billion.

New buyers will be liable for the fines imposed on them by the competition monitoring agency, Holsim said.

“It’s a simple sale of shares. We have no further compensation,” Janish said.

During the 2016 investigation by the Competition Commission of India, two companies, along with several other cement manufacturers, were found guilty of cartelization. Antitrust has fined Ambuja Cement Rs 1,164 crore and the ACC Rs 1,148 crore. The company challenged the order of the two appellate authorities, which ruled against them. They go to the Supreme Court in 2018 and are waiting for a verdict.

The management of the Swiss company said that choosing Adani Group as its buyer of Indian assets would ensure a smooth transaction as the latter has negligible previous interests in the cement industry and is therefore unlikely to be offended by the competition law.

Tax agreement to help

Minhaj Lokhandwala, a partner at law firm IndusLaw, said Holcim would also be protected under the Indo-Netherlands Double Taxation Avoidance Agreement (DTAA).

The seller of the deal is Holderfin BV, a Dutch entity Holcim that held shares through Mauritius-based Holderind Investments Limited, Lokhandwala said. “According to the Indo-Netherlands Double Taxation Avoidance Agreement, profits from the sale of property other than certain assets are taxable only in the state where the seller is a resident, i.e. the Netherlands in this case,” the lawyer added.

“Accordingly, under the DTAA, India may not have the right to levy tax on transactions, although the significant value of the Mauritius company may arise from assets located in India. It will be canceled by the Indo-Netherlands agreement, “said Lokhandwala.

Incidental liability

According to Sonam Chandwani, managing partner at law firm KS Legal & Associates, since the obligations taken from the Adani group’s no-confidence case were still incidental liability, the final assessment may vary depending on the outcome of the Supreme Court ruling.

“It will be interesting to study how the assessment changes over time, as this is the key issue that must be addressed,” Chandwani said. “Companies are fighting in the Supreme Court. This makes the Adani Group liable for any tax and antitrust liability arising out of the agreement. No compensation is required for the sale of shares, benefiting the Holcim Group and the transaction. Help, ”he added.

Income to buy funds

Proceeds from the sale will be used by Swiss cement manufacturers to acquire resources in other geographical areas. The company says it has a pipeline of about 10 consolidation and acquisition agreements.

“We have spent only 5 billion Swiss francs in the last 15 months and we hope we can keep up the pace so we can use this money very quickly,” said Holcim’s chief executive. “We have a very good pipeline in M&A. So, our job is to check all the transactions and bring a good one.”