After telecom giant Vodafone, it is now the turn of another cross-border merger involving Indian assets to have landed in a tax tangle. Sanofi-Aventis, which picked up a majority stake in the unlisted Hyderabad-headquartered pharma major Shantha Biotechnics in 2009, has been asked to cough up a capital gain tax amount of Rs 700 crore by the Income Tax (I-T) department. Sanofi has challenged the I-T department’s claim and the matter is now in the AP High Court.
Income Tax officials say the case is akin to that of Vodafone, which too is fighting a similar tax battle after it was asked to clear its dues of Rs 11,218 crore as capital gain tax on its acquisition of Hutchison. The IT department in Hyderabad has raised a similar claim on France’s biggest drug maker, Sanofi-Aventis, whose acquisition of Shantha Biotechnics was valued at 550 million euros (Rs 3,770 crore).
With the Bombay High Court ruling in the Vodafone matter, the officials of the international tax division of IT department said that their capital gain tax claim on France’s biggest drug maker for similar evasion just got a tad stronger.
“Transfer of capital assets results in capital gains and the stake holders therefore get covered under the jurisdiction of the Indian Income Tax Act, 1961. While Vodafone has been doing business for a longer period and therefore has to pay an extra interest amount, in Sanofi’s case, the merger is recent and therefore the claim amount is comparatively less,” said a department source. (Of the I-T department’s total raised demand of Rs 11,218 on Vodafone, Rs 7,900 crore is the tax amount with Rs 3,318 crore as interest for 42 months of operation in India.)
It is learnt that Sanofi managed to convince both individuals and corporate players in India and abroad to invest in its shares and drew home another Rs 100 crore after its stakes went high following the merger.
Defending its stand Sanofi-Aventis is said to have argued saying that such mergers are not taxable and they have clearly not made any capital gain on the deal.
However, IT officials note that with this first big-ticket deal for a foreign company in the Indian biotech sector, Sanofi got a platform in the country and also access to new products of Shantha Biotech, which is known for its range of vaccines and has been a supplier of vaccines to Asia-Pacific, Africa and Latin America.