SABMiller faces final demand for huge Indian tax bill
The retrospective tax bill, which includes interest on the disputed sum, follows a series of claims from the Finance Ministry in New Delhi which aims to secure tax on deals completed outside of India.
The London-listed company has argued in the Mumbai High Court that the deal was not eligible for tax because it was agreed by two non-resident firms.
Following the tax demand, Foster’s announced a potential liability to its shareholders last week. As part of the acquisition, the Australian brewer and SABMiller had agreed a tax indemnity.
Defended vigorously
“The potential claim relates to a notice of demand issued by the Director of Income Tax in India to SABMiller for tax and interest,” according to a statement on the Forster’s website. “Foster’s is confident of the positions that were taken in relation to Indian tax. Those positions will be defended vigorously in the Indian Courts. In the event that the demerger of Foster’s proceeds any liability under the indemnity will remain with Foster’s.”
SABMiller reports investing over $500m in India since moving into the market in 2000.
The company operates 10 breweries across nine states in the country and employs more than 3800 people.
The firm claims to control one-third share of the Indian beer market and reports undertaking a range of citizenship initiatives.
New Delhi’s determination to claim retrospective tax on deals completed outside its borders is seen by some analysts as a powerful disincentive to foreign investors.
Aseem Chawla, partner at legal firm Amarchand & Mangaldas & Suresh A Shroff told The Financial Times: "The tax revenue departments in India and China are on an overdrive when it comes to cross-border transactions. They are being viewed with a microscope."
Tax from Kraft
In addition to SABMiller’s two-year dispute, the Finance Ministry is also trying to clawback tax from Kraft following its takeover of Cadbury in February 2010.
Similar claims, this time for $2.5bn, have been made against UK telecoms company Vodafone following its 2007 acquisition of assets in India from Hong Kong-listed firm Hutchison.
Meanwhile, earlier this week SABMiller’s subsidiary company Southern Sudan Beverages Ltd (SSBL) announced the investment of $15m in its operations in South Sudan. The money will be used to increase production capacity at its brewery in Juba.
Brewing capacity is expected to reach 500,000 hectolitres by November 2011.
