INDIA – Hindustan Unilever Limited (HUL) has received a tax demand notice of Rs962.75 crore (US$114.7M) from the Income Tax Department, including Rs329.33 crore (US$39.24M) in interest, related to the acquisition of intellectual property rights for India Health Food Drink (HFD) from the GlaxoSmithKline (GSK) Group.
According to the FMCG giant, the tax demand arises from HUL’s alleged failure to deduct Tax Deducted at Source (TDS) on a remittance of Rs3,045 crore (US$362.86M) made for the acquisition of the Horlicks brand in India.
This acquisition was part of a broader deal in which other GSK Consumer Healthcare brands, including Boost, Maltova, and Viva, were also integrated into HUL’s portfolio.
Despite the substantial tax demand, HUL stated it does not anticipate significant financial implications at this time.
The company argues that, based on judicial precedents, the income arising from the sale of intangible assets like intellectual property rights is not subject to taxation in India.
“The Company has strong case on merits on tax not withheld, basis available judicial precedents, which have held that the situs of an intangible asset is linked to the situs of the owner of the intangible asset and hence, income arising on sale of such intangible assets are not subject to tax in India,” HUL said.
In response to the tax notice, HUL plans to appeal the order and pursue all necessary legal actions in accordance with Indian law
Additionally, the company has an indemnification right that allows it to recover the tax demand from the relevant parties involved in the transaction. HUL is expected to take further steps to enforce this right.
HUL completed its merger with GlaxoSmithKline Consumer Healthcare Limited (GSKCH) in 2020 after receiving the necessary regulatory approvals.
In the first quarter of FY25, the company reported a 3 percent year-on-year increase in net profit, reaching Rs2,538 crore (US$302.42M), while its revenue from operations stood at Rs15,166 crore (US|$1.69B), marking a 2 percent rise year-on-year.
In July 2024, HUL sold its water purification business, Pureit, to the Indian arm of the US-based water technology company AO Smith for Rs601 crore (US$71.62M) as part of its strategy to focus on core categories.
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