Smart move by BG in Gujarat Gas sale to GSPC

Vol 16, PW 10 (29 Nov 12) People & Policy

Double Tax Avoidance Agreement – four mundane words that could provide a lifeline to UK-based British Gas as it scrambles to recover an estimated Rs458.76cr ($83.33m) in capital gains tax on its sale of Gujarat Gas to GSPC.

PETROWATCH learns BG might be saved from paying thanks to India’s double taxation treaty with Singapore, where BG has its Asia Pacific HQ. India signed the treaty on May 27, 1994 and amended it in June 2011.

BG argues all its India operations are managed by its Singapore HQ, exempting from 20% capital gains tax in India. Better still, there is no capital gains tax in Singapore on such deals! This certainly explains why BG insisted on concluding its 65.12% majority stake sale to GSPC in Singapore on October 3 for Rs2463.8cr ($447.55m) or Rs295 ($5.34)/share.

No mystery either why GSPC managing director Tapan Ray travelled to Singapore on budget airline Indigo to sign the deal - even though GSPC was the buyer. But playing safe, cautious GSPC is waiting until all clearances are in place from Indian tax authorities.

“GSPC has asked BG to provide an advance tax ruling from the IT department,” we hear. “GSPC doesn’t want problems from the Indian taxman.

” GSPC’s taxation department, he adds, calculated and deducted the capital gains tax from the amount paid to BG and deposited it in an escrow account.