HUL faces Rs 962-crore tax demand over GSK acquisition deal.

India’s leading consumer products company, Hindustan Unilever Limited (HUL) faced a tax demand notice for Rs 962 crore by the Indian tax department. This demand has come from its Rs 3,000-crore acquisition of GSK’s consumer healthcare business completed in fiscal 2020. The takeover comprised of Horlicks, Boost and other Health food drinks products which are widely consumed in India.

There are reported that it is connected to the value assigned to the intangible assets which where acquired at the time of the transaction. During mergers and acquisitions especially the cross-border type, companies end up procuring many more assets such as brands, trademarks, patents and other types of intellectural property among others. They tend to make up the bulk of company’s value and their value is rather hard to determine sometimes, it leads to possible conflicts with the tax authorities due to differences in interpretation of the laws and standards.

In this case, the Indian tax authorities seems to have questioned the mode of transactions that took place and whether all the taxes on the transfer of these assets were paid. HUL, however, is expected to challenge the tax demand, this is because the company has complied with the existing legal provisions of tax and accounting standards in the exercise of the acquisition.

The company has several approaches toward the consideration of the tax demand. HUL can appeal of the assessment to the tax authorities because it has been levied unfairly. Instead, the company may choose to compromise what may entail conceding to a lesser tax amount to be paid or paying the amount demanded while protesting.

This state of affairs gives an account of some of the problems that multinational corporations encounter when undertaking high value transactions, especially in countries such as India where the tax legislations are complicated and could be ambiguous. This decision will be keenly observed as it depends on it may affect the future M&A transactions within the country especially where there are considerable intangible assets.