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Adani's Buyout Of Ambuja-ACC: No Tax?

The tax implications of Adani's purchase of Ambuja and ACC.

<div class="paragraphs"><p>The logo of the Adani Group is seen on the facade of one of its buildings on the outskirts of Ahmedabad, India. (Source: Reuters)</p></div>
The logo of the Adani Group is seen on the facade of one of its buildings on the outskirts of Ahmedabad, India. (Source: Reuters)

Gautam Adani's $10.5-billion buyout of Ambuja Cements Ltd. and ACC Ltd.
will not attract any capital gains tax, thanks to the India-Netherlands tax treaty.

The deal involves sale of shares of a Mauritius company, held by a Netherlands company, which owns the Indian listed companies, Girish Vanvari, founder at Transaction Square, said. Such an indirect transfer of shares is not taxable as per the India-Netherlands treaty, he told BQ Prime.

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Here's how the deal is structured.

  • Adani Group's Mauritius entity Endeavour Trade and Investment Ltd. will acquire 100% stake in Holderind Investments Ltd.—also based in Mauritius—from the Netherlands-based Holderfin B.V.

  • Holderind Investments holds 63.2% in Ambuja Cements and 4.48% in ACC. Holderind holds another 50.05% stake in ACC through Ambuja.

Since the seller here is the Netherlands entity, the India-Dutch tax treaty provisions will apply.

Article 13(5) of the India-Netherlands DTAA says gains derived from alienation of any property, other than specified in treaty, shall be taxable only in the State of which the alienator is a resident.

The sale of shares by Holderfin B.V in Holderind Investments will fall under this provision, Sachit Jolly, partner at DMD Advocates, said. The taxability, if any, will arise in the Netherlands and not India, he said.

The indirect transfer provisions of the income tax law, even if applicable, will be overridden by beneficial provisions of India-Dutch treaty, Jolly pointed out.

Section 195, which deals with withholding tax liability for indirect transfers, says the payment should be chargeable to tax. Under the India-Dutch treaty, this payment is not chargeable to tax. And the treaty will override domestic law.
Sachit Jolly, Partner, DMD Advocates

So, there will be no withholding tax obligation on Adani entity, Jolly added.

Separately, the Holcim management, in a conference call after the deal announcement, also said that no capital gains tax will be payable on the sale of stake in Ambuja Cements, ACC.

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Disclaimer: Adani Enterprises is in the process of acquiring a 49% stake in Quintillion Business Media Pvt. Ltd., the owner of BQ Prime.