Home / Market / Stock-market-news /  GlaxoSmithKline stake sale in GSK-HUL may attract LTCG tax

Mumbai: GlaxoSmithKline Plc’s decision to exit its consumer healthcare business in India could make it liable to long-term capital gains (LTCG) tax. However, Hindustan Unilever Ltd (HUL) may get to mitigate its tax outgo in subsequent years, given that part of the deal value will be on the goodwill the asset brings to its books, said experts.

As part of the deal announced on Monday by GlaxoSmithKline and Unilever Plc, their Indian units—GSK Consumer Healthcare Ltd and Hindustan Unilever Ltd—will merge by the end of 2019.

This part of the transaction will not be taxable, but GlaxoSmithKline’s subsequent sale of its 5.7% stake in the merged entity will be.

A GlaxoSmithKline press statement announcing the deal said that the 133.7 million HUL shares it will receive after the merger will have a value of 23,000 crore. India taxes LTCG tax at 10%.

However, HUL, through which the deal is being executed, will be able to amortize, in subsequent years, the goodwill that part of the transaction value will be attributed to, said Girish Vanvari, founder of advisory firm Transaction Square.

The premium paid over an intangible asset’s book value can be amortized in subsequent years as per the Income Tax Act, 1961, said Ved Jain, former president, Institute of Chartered Accountants of India.

However, GlaxoSmithKline has not specified a timeframe for monetizing the shares in the merged entity.

“Following completion of the transaction, currently expected by the end of 2019, GSK intends to sell down its holding in HUL. Such sell down will be in tranches and, at such times as GSK considers appropriate, taking into account market conditions," said GlaxoSmithKline. The companies did not divulge further details on how the sale will be executed.

An official with the income tax department, requesting anonymity, said the authority will wait for more information on the transaction before taking a decision. “We take decisions in such matters only when there is clarity on the definite contours of the transaction. The proposed merger will only get completed by end of 2019."

Earlier, the tax department had proactively guided Walmart Inc. in meeting its tax obligations on its purchase of a 77% stake in Flipkart for $16 billion.

In May, the department had sought to sensitize the parties about the implications of the tax law provisions on the deal.

Emails sent to HUL, GlaxoSmithKline and Unilever remained unanswered till publishing of this story.


Gireesh Chandra Prasad

Gireesh has over 22 years of experience in business journalism covering diverse aspects of the economy, including finance, taxation, energy, aviation, corporate and bankruptcy laws, accounting and auditing.
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less

Recommended For You

Trending Stocks

Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout