Relief for Foster's Australia in India Tax Case?
Foster’s Australia (now acquired by SABMiller) can look forward for respite in a tax litigation, which has been going on India for a few years now. As our readers know, SABMiller had acquired Foster’s India from Foster’s Australia Ltd in 2006, for USD 120 million. The tangible and intangible assets of Foster’s India were taken over by SABMiller. The matter is sub-judice in a Pune court. Earlier, Foster’s Australia had approached the Authority of Advanced Ruling (AAR), a quasi-judicial body which ruled against the company and said the Australian beer company’s sale of brand and trademarks to SABMiller in India was taxable in the country.
There had been an ongoing debate between the company and the tax department on whether tax could be claimed in India on a transaction that had taken place outside the country. The income tax department argued that "the rights in and over the trademarks existed in India only" and hence its transfer were taxable. However, Foster’s argued that the trademark is an asset independent of registration, which merely grants some protection to the brand and so it should not be taxed.
The income-tax department feels that transactions between two offshore entities can be taxed, as long as the business is related to the Indian market. Based on this argument, the tax department has raised demands on the Foster’s and SABMiller deal. Tax authorities have been claiming a USD 42 million fine on the deal.
Authority of advanced ruling
When Foster’s Australia moved to AAR, it led to a similar decision. The AAR held that the Foster’s India brand, trademark and goodwill are always associated with the company’s Indian business, and hence their sale to SABMiller is liable to be taxed in India. The AAR had stated that the Australian company’s argument that unlike other capital assets, which can be geographically located, intangible assets like brand and trade name have no particular geographical location. Therefore, they have no situs apart from the domicile of the owner. The authority had also pointed out that the trademark of Foster’s beer was registered in India in 1993. Further, Foster’s trademark and brand were used by Foster’s India for about a decade after the license was granted to it by Foster’s Australia in 1997.
Vodafone Tax Case
Indian Supreme Court verdict on Vodafone’s USD 2.2 billion tax liability will bring respite to Foster’s, when the case comes for hearing in a Pune based court. Supreme Court verdict settles a prolonged litigation that has created a lot of uncertainty for foreign companies having similar structures or were proposing to enter into similar transactions in India.
In its judgment on 23rd January 2012, Indian apex court said Indian tax authorities had no jurisdiction over transactions abroad and quashed the Income Tax department’s demand of capital gains tax from Vodafone pertaining to its majority buy of Hutchison Essar in 2007. Income tax authorities had claimed INR 112.18 billion (USD 2.2 billion) in the form of capital gains tax from the world’s largest telecom operator Vodafone.
"This landmark decision will enhance the trust of international investors in the Indian judicial system and the strong institutional fundamentals underlying the economy," according to Federation of Indian Chamber of Commerce and Industry’s secretary general Rajiv Kumar. "Stability of institutional processes is an important requirement for attracting foreign direct investment. This decision will re-inject confidence in cross-border mergers and acquisitions and further augment such investment coming to India," Kumar further added.
