Unilever expects income tax dept questions on Horlicks deal tax math from GlaxoSmithKline Plc

Mumbai: Unilever expects India’s tax department to question the amount it claims as tax deductible following the acquisition of Horlicks from GlaxoSmithKline Plc.“We expect around ₹1.3 billion (₹11,200 crore) of the goodwill to be deductible for tax purposes,” Unilever said in its earnings statement on Thursday. “While we believe there is legal basis to claim the Horlicks goodwill as tax deductible, we expect challenges to this from the Indian tax authorities. Since the acquisition date, foreign exchange has decreased this goodwill by ₹44 million.”Hindustan Unilever (HUL) acquired GSK Consumer Healthcare in an all-stock deal, valuing the Indian unit of GSK at ₹31,700 crore. HUL completed that transaction in April this year, separately acquiring the Horlicks brand from GlaxoSmithKline Plc for ₹3,045 crore, to save on the royalty costs.Experts said HUL has an opportunity to claim tax depreciation on the goodwill and other intangibles in the books, but this interpretation can be questioned.“The valuation of goodwill is almost always a contentious issue between the entity claiming depreciation and the authorities,” said Ashish K Singh, managing partner, Capstone Legal. “There is a strong requirement to develop specific guidelines on this issue to avoid unnecessary tax litigation and improve ease of doing business.”77138495Goodwill not Defined Under I-T ActUnder the Income Tax Act, goodwill is not defined. However, to qualify for depreciation, the excess consideration paid for acquiring knowhow, patents, copyrights, trademarks, licences and any commercial rights are typically grouped under the head of goodwill on financial statements under intangible assets.“Goodwill represents the future value which the group believes it will obtain through operational synergies, such as the overlapping distribution network, tax benefits on goodwill and working capital improvements and leveraging from the competencies and capabilities of the Horlicks brand presence and recognition to generate stronger market power,” Unilever said.“HUL had indicated tax benefits arising out of the Horlicks acquisition but there is still no clarity on the amortisation period and what amount of goodwill will reflect on HUL or Unilever books or both,” said Abhijit Kundu, vice president, research, consumer and retail, Antique Broking.Within the acquired net assets, contingent liabilities amount to $142 million in ongoing litigation against GSK’s India unit related to direct and indirect tax disputes with the Indian tax authorities, Unilever said. For full report go to www.economictimes.com

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