In a case similar to the Vodafone groupís $2-billion tax dispute, the Supreme Court on Wednesday asked French drug major Sanofi SA to explain why it should not pay tax to the tune of around R1,058.07 crore on a cross-border merger involving Indian assets of Hyderabad-based Shantha Biotechnics (SBL).
A bench headed by Justice AR Dave sought reply from the French firm after the income-tax department challenged the Andhra Pradesh high court's February 15 order that ruled in favour of Sanofi Pasteur Holding SA.
It also posted the matter for further hearing on January 14 and asked the parties to file short notes.
According to the department, the HC erred in holding that ďthe case does not warrant for lifting the corporate veil of ShanH and that there is no material to conclude that there is a design or stratagem to avoid tax.Ē
Sanofi in 2009 bought a majority stake in SBL in an acquisition valuing the vaccine maker around R3,800 crore. Sanofi acquired SBL by purchasing ShanH, which owned 80% of SBL, from the Merieux Alliance.
Although the deal was transacted in France, the income-tax department in 2010 raised a tax demand on Sanofi, holding that the underlying assets (shares of an Indian company) were being transferred and, therefore, the deal was subject to Indian tax laws.
The government in this case has once again questioned the rationale of the Supreme Court's January last yearís judgment in the Vodafone case. The finance ministry has asked the top court to review the judgments in the Vodafone International Holdings matter and the Azadi Bachao, as both are in conflict with the decision of a Constitution Bench of five judges in the M/s McDowell case.
Solicitor-general Mohan Parasaran, appearing for the finance ministry, requested the apex court to look into ďwhether a foreign company, which has no business activity except holding shares in an Indian company and which was subsequently converted into a joint venture only for the purposes of holding shares in the Indian company, can be considered as a company with economic substance or can it be ignored being a puppet subsidiary for the purposes of imposing