Foresightedness of the entity’s advisors which led to tax savings of $ 800 millions (approx.)
Updated: May 19, 2022
Which was said to be an investment banker’s dream come true, a complex, multilayered deal which eventually culminated with a big buy out; Holcim acquired controlling stake in ACC teaming up with Gujarat Ambuja Cement Ltd (Ambuja’s parent company) in 2007.
With over $ 2.5 billion (approx.) investment in GACL, ACIL and ACC, the Holcim group has exited the Indian market with a vision to invest into greener products in the European and US market.
The benefits of tax planning and corporate structuring are quite evident in this deal as it has resulted in savings of $ 800 million (approx.) capital gains taxes in India which is equivalent to INR 6,195 crores.
Let us deep dive behind this deal to analyze the structure:
Ambuja Ltd. and ACC Ltd were owned by Holcim’s offshore investment arm- Holderind Investments Ltd (A company incorporated in Mauritius) which is controlled and owned by Holderfin B.V. (Holcim group entity).
Endeavour Trade and Investment Ltd: An offshore special purpose vehicle of the Adani family, which is not a part of the listed entities or operating entities.
Structure of Deal:
Holderfin B.V. transferred the control of Holderind Investments Ltd to Endeavour Trade and Investment ltd. This resulted in change of beneficial ownership from Holcim group to Adani family (group).
DTAA & Tax Analysis:
As, Holderfin B.V. (herein referred to as the “transferor”) is a tax resident of Netherlands, and the transaction is deemed to accrue in India as per Explanation 5 to section 9 of the Income tax Act, as the shares derive its value substantially from the assets located in India, and therefore, India-Netherlands DTA shall apply to assess the taxability of the transaction.
As per the article 13, para 5: Gains from alienation of shares shall be taxable only in the State of which the alienator is a resident; i.e., the gains on alienation of shares of Holderind Ltd (Mauritius) shall be taxable in the Netherlands since, Holderfin B.V. is a Netherlands’s tax resident.
The exception to the above para is a case where gains from alienation of shares issued by
company (Ambuja & ACC) resident in other state (India) which shares form part of at least a 10% in the capital stock of that company, may be taxed in the other state (India), if alienation takes place to an Indian resident.
In the given case, the shares are transferred to an offshore investment vehicle of the Adani family which is separate from the Adani enterprises or listed group entities. Therefore, the gains are taxable in Netherlands.
As per section 195, withholding taxes are applicable on payments which are chargeable to tax in India. Since, as per the India-Netherlands treaty this payment is not chargeable to tax in the hands of Holderfin B.V., the treaty provisions shall have an overriding effect on the domestic tax law.
This is the result of foresightedness of the entity’s advisors which led to a substantial gain of $ 800 million (approx.) in form of capital gains tax savings.