Sanofi-Aventis gets tax reprieve from high court

Verdict sets aside I-T demand for Rs 1,058 cr on Shantha Biotechnics buy

 

The Andhra Pradesh High Court today said French pharma major Sanofi-Aventis need not pay tax for the acquisition of city-based Shantha Biotechnics in 2009, as had been demanded by the income tax (I-T) department.

The I-T department had demanded a capital gains tax of Rs 700 crore from Sanofi — outstanding of Rs 1,058 crore — claiming that the French company gained new markets and platforms for its products through the acquisition of Shantha. The tax department had also said Shantha floated a shell company — ShanH — a week ahead of signing the deal for tax avoidance. In 2010, Sanofi challenged the I-T department’s claims.

Rohan Shah, managing partner of Economic Laws Practice, the law firm representing petitioners Sanofi in the case, told Business Standard: “Our contention was that in the facts of our case, India had no right to tax us. Under the Indo-French tax treaty, the tax should only have been in France. The court has accepted that.”

Sanofi-Aventis’ vaccine division, Sanofi Pasteur, had acquired an 80 per cent stake in Shantha Biotechnics in July 2009 for around Rs 3,800 crore. Sanofi Pasteur had acquired ShanH (a subsidiary of Merieux Alliance), which bought a majority stake in Shantha Biotechnics in November 2008.

Shantha Biotechnics was then a privately held company, making vaccines for Hepatitis-B, diphtheria, cholera and tetanus vaccines.

Shah said: “The income tax department made different claims at different times. Their numbers had been shifting in terms of the claims. It is a very important judgment (that came today), where the court has once again stepped in to protect the rights of international investors.”

In the judgment pronounced today, the court said ShanH was an independent corporate entity, registered and resident in France. “It (ShanH) has commercial substance and a purpose. Since its inception (in 2006), ShanH acquired and continues to hold shares in Shantha Biotechnics, and there is no warrant to lift the corporate veil in the present circumstances. The transaction of the sale of shares of ShanH to Sanofi is not a design for tax avoidance. The transaction is chargeable to tax in France, in terms of the provisions of the DTAA (Double Taxation Avoidance Agreement),” the court said. said.

Sanofi-Aventis' vaccine division acquires 80% stake in Shantha Biotechnics for Rs 3,800 crore in 2009

I-T department demands capital gain tax amount of Rs 700 crore from Sanofi in November 2010

Sanofi challenges I-T claims in 2010

I-T department summons management of Shanta in connection with outstanding tax demand of Rs 1,058 crore faced by Sanofi in 2012