Editorial – January 2018

In our series on e-commerce companies and how they ensure that they pay the lowest taxes, we focus on Flipkart in this issue. Flipkart does what all tax avoiders all over the world do, hiding behind a complex web of companies. This is not illegal by itself, but jurisdictions globally are going after such practices. Therefore, the scrutiny on Flipkart is needed. Here is a company which began with a small sum of Rs 90.50 lakh, achieved a turnover of of Rs 13,921 cr (FY 16) and got away with tax payments of a mere Rs 1.89 crore as income tax.

Of all the companies in the Flipkart puzzle, the one that is most important is WS Retail Service Pvt Ltd. It is the entity, which made the tax payments. An earlier investigation (2012) by the Indian regulatory agencies had resulted in Flipkart selling out large stake in WS Retail and relinquishment of board seats by the promoters.

Meanwhile, to avoid paying taxes in India, the holding company was established in Singapore, Flipkart Pvt Ltd (FPL). The ownership of FPL Singapore largely rests with US-based hedge funds Tiger Global, Accel Partners, Naspers and the original promoters, Sachin and Binny Bansal. FPL in turn has several entities registered in Singapore as 100 pc subsidiaries such as Flipkart Marketplace Pvt Ltd, Flipkart Logistics Pvt Ltd and Flipkart Payments Pvt Ltd. These companies, in turn, hold stakes in Indian entities through a complex maze of companies. Such structures were deliberate to get around the ban on FDI in online retail in India.

Up until March 29, 2016, India had allowed 100 per cent FDI in business-to-business (B2B) e-commerce but none in retail e-commerce ie, business-to-consumer (B2C). After that, the government allowed 100 per cent FDI in online retail of goods and services under what is called the “marketplace model.” New rules were notified, capping total sales originating from a group company or one vendor at 25 per cent. Flipkart has continued to add several entities but made sure they are privately held to maintain secrecy of its shareholding. Read the first part of our investigative story for complete details.