$ 6.4 billion Holcim deal with Gautam Adani to be tax-free?

$ 6.4 billion Holcim deal with Gautam Adani to be tax-free? – Mail Bonus

Holcim Group in Switzerland said no capital gains tax would be paid in India for its $ 6.4 billion transaction to sell shares in and to Adani Group.

Jan Jenisch, managing director, also said that the company would not provide damages against fines imposed by the Competition Authority on Indian cement companies and which are currently being appealed to the Supreme Court.

“According to our analysis, this is a tax-free business,” Jenisch told experts. “We never know if there will be any complications, but we expect to receive 6.4 billion Swiss francs (about 6.4 billion dollars) as net profit.”

Tax officials told ET that the deal was unlikely to be subject to capital gains tax if Holcim had acquired the share before 2017, when India and Mauritius renegotiated their bilateral tax treaty and revoked the capital gains tax exemption available for investments from the island nation. The Mauritius-based Holcim Group had bought Ambuja Cements (then Cement) in January 2006 for £ 4,500 million.

“Evaluator takes final call”

All transactions transferred through Mauritius prior to the 2017 amendments were settled, allowing them to benefit from a capital gains tax exemption. “The final decision will be made by the assessor on the basis of the substance of the case,” said the tax director. Adani Group buys the two companies for 10.5 billion dollars and Holcim’s share in the agreement is worth 6.4 billion dollars.

The new buyer will be responsible for the fines imposed on him by the competition authorities, said Holcim.

“This is a direct sale of the shares. There is no further damages on our part,” Jenisch said.

The two companies, along with many other cement producers, were found guilty of links in the 2016 investigation by India’s competition committee. The Competition Authority had imposed a fine of Rs 1,164 million on Ambuja Cements and Rs 1,148 million on ACC. The companies objected to the order in two appeals authorities, which ruled against them. They moved the Supreme Court in 2018 and a verdict is awaited.

The management of the Swiss company said that choosing Adani Group as the buyer of its Indian assets would ensure a smooth trade, as the latter has a negligible interest in the cement industry and is therefore unlikely to violate competition law.

Tax treaties to help

Minhaz Lokhandwala, a member of the law firm IndusLaw, said Holcim would also be protected under the India-Netherlands Double Taxation Treaty (DTAA).

The seller in the agreement is Holderfin BV, a Dutch party in Holcim that owned the share through Holderind Investments Ltd, based in Mauritius, Lokhandwala said. “According to the agreement on the double taxation of India and the Netherlands, profits from the sale of property, other than any specified property, are only taxed in the state where the seller resides, ie. The Netherlands in this case, “says the lawyer. added.

“According to the DTAA, India may not be entitled to tax the business, although the significant value of the Mauritius company may be due to assets located in India. In this case, there may be no withholding tax liability, as indirect tax provisions under Indian tax law would also violated the treaty between India and the Netherlands, “said Lokhandwala.

Contingent liabilities

According to Sonam Chandwani, CEO of the law firm KS Legal & Associates, because the commitments made by Adani Group from competition cases were still contingent liabilities, the final valuation could vary depending on the decision of the Supreme Court.

“It would be interesting to study how valuations change over time, as this is the core issue that needs to be addressed,” said Chandwani. “The companies are fighting in the Supreme Court. This makes Adani Group liable for any tax and competitive obligations arising from the agreement. The sale of shares does not require damages, which benefit Holcim Group and the business. Being Adani Group in India could help overcome its obligations. of the two companies, “she added.

Proceeds to buy-in funds

The proceeds from the sale will be used by the Swiss cement producer to buy properties in other regions. The company said it had about 10 mergers and acquisitions.

“We have recently spent over 5 billion Swiss francs in the last 15 months and we hope we can maintain a similar pace so we will put that money to work very quickly,” said Holcim’s CEO. “We have a pretty good pipe in M&A. So our role is to check all the business and come up with good ones.”

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