Mumbai: The historic merger deal between the Walt Disney Company and Rupert Murdoch’s 21st Century Fox is likely to face the scrutiny of Income Tax authorities in India pertaining to its non-US entertainment assets that includes entertainment properties like Star India and Tata Sky.
The authorities are planning to use provisions of the five-year-old law that deals with indirect transfer of assets through international transactions and verify if the tax on the deal needs to be paid here in India.
As a first step the tax department would ask both Star India and Disney to submit details of their revenues and deals to formally kick start the scrutiny of the transaction. The income-tax department has a department dedicated to tracking global deals, especially of those companies, which have a presence in India.
The government had introduced indirect transfer of share provision in 2012 after the controversy over the sale of its share of the India mobile phone business by Hutchison Whampoa to British giant Vodafone.
As per the indirect transfer of shares regulation, if shares of an Indian company held by a foreign fund or a company constitute more than 50% of its total assets and the value exceeds Rs 10 crore, the transaction would be taxed in India.
According to the provisions of the law designed to tax indirect transfer of assets, short-term capital gains tax of 40% and long-term capital gains tax of 20% is applicable on all major and minor international transactions if substantive value of the deal is derived from India.
In the Disney Fox deal Star India, Hotstar, Star Sports Network, and Fox Star Studios have an estimated value of about $15 billion without considering its 30% stake in DTH firm Tata Sky.
Last year, Edelweiss Securities valued Star India at $14.3 billion (Rs 97,000 crore) with Rs 63,600 crore for its entertainment business, Rs 10,200 crore for Hotstar and Rs 18,000 crore for the sports business. Star also owns the global rights to IPL, which it bought earlier this year for Rs 16,347.5 crore ($2.5 billion). If this is included, the valuation only goes up.
In coming days we can expect the Eagle eyes of tax sleuths scanning its pray and vying for its share of tax revenue from one of the word’s biggest Media and Entertainment deal in the history.