Bloomberg Law
June 22, 2018, 1:21 PM

Could Disney Duck India Taxes in Fox Deal?

Walt Disney Co. has successfully outbid Comcast Corp. for control of 21st Century Fox Inc. and its prized Indian assets—and now the next hurdle could be structuring the deal in order to eliminate its tax bill in the country.

The $71 billion acquisition, announced June 20, will trigger taxes in the U.S., since both entities are based there, but it also involves a stake in two of India’s largest media companies: Tata Sky Ltd. and Star India Pvt. Ltd.

While that means the deal will almost certainly draw scrutiny from the Indian tax authority, tax practitioners have said it’s also possible for Disney to avoid a tax bill there—a major win on top of gaining access to India’s 1.2 billion user market.

Disney declined to confirm additional details of the acquisition. It “will bring significant financial value to the shareholders of both companies,” Disney CEO Robert Iger said in a release announcing the deal.

The deal is the latest example of a U.S. company’s foray into the Indian market—Walmart Inc. took a similar leap May 9, with its acquisition of Flipkart Group. The Indian tax authority has already started questioning that deal.

Here are possible deal structures and tax outcomes:

No Tax: Simple Share Purchase

A simple share purchase agreement is the most straightforward type of acquisition structure, practitioners said, and the model most likely advancing between Disney and Fox. Since Fox’s Indian assets likely make up less than 50 percent of its overall value, the sale of those assets may not trigger any tax provision in India.

Fox confirmed that it owns 100 percent of Star India and a 30 percent interest in Tata Sky in an email to Bloomberg Tax June 21. Star India is valued at $11 billion according to a Bloomberg Intelligence report. In comparison, Fox’s film and TV studio could be worth as much as $20 billion, the report said.

In a share purchase agreement scenario, Disney would buy shares directly from 21st Century Fox’s shareholders, and “doesn’t enter into any separate agreements regarding the underlying assets,” Suril Mehta, associate director of K.C. Mehta & Co., said in a June 19 email.

“Given the size of the deal and assets involved, we assume that the transfer of Star India and Tata Sky will not make up a substantial part of the deal,” Mehta said.

10 Percent Tax: Business Transfer

Or, Disney could use a business transfer agreement where each asset is transferred individually. That would be considered a becoming a direct transfer of Indian assets to the U.S., and would bring tax consequences.

“In this case a 10 percent capital gains tax will certainly get triggered because it is a direct sale of Indian shares,” Mehta said, adding that the capital gains would also be taxed in the U.S.

This type of deal is likely less appealing for Fox because it would be slow and resource-consuming, on top of bringing a tax bill for Disney, practitioners said.

“It is the most tax inefficient way to structure the deal because Star India will likely want to remit their earnings back to U.S. shareholders, and end up paying a rough twenty percent dividends distribution tax,” Uday Ved, a Mumbai-based chartered accountant, said in June 22.

Unknown Tax Penalty: From the Tax Authority

Practitioners warned the tax authority could also invoke the country’s or general anti-avoidance rules (GAAR) if Disney, Fox, or the Indian subsidiaries don’t cooperate with an inquiry.

The rules empower them to review and re-characterize transactions if it’s clear obtaining a tax advantage was the main goal. The re-characterized transaction would likely be liable for tax in India.

Ved said it is within India’s jurisdiction to open inquiries regarding indirect transfer of assets while Star India and Tata Sky are additionally obligated to file indirect transfer forms with the tax department—an information sharing method aimed to fulfill specific anti-avoidance rules.

“If the tax department does not get the information they request, they then can apply GAAR and then all parties involved would lose treaty benefits—which Star India shareholders are likely going to invoke,” Ved said.

Practitioners say regardless of how the deal unfolds, India’s tax authority will likely launch an inquiry to assess its tax implications prior to initiating litigation. That proactive approach would be similar to the probe it has started in the Walmart-Flipkart deal.

Akshay Kenkre, founder of TransPrice Tax Advisors LLP, told Bloomberg Tax in a June 15 email that “the Indian tax audits have seen a paradigm shift in the past four to five years with the litigation-based approach has changed into advance discussions and analysis.”

To contact the reporter on this story: Siri Bulusu in New Delhi at

To contact the editor on this story: Penny Sukhraj at