Walmart Faced with $1 Billion Tax Liability Following Move of PhonePe to India

According to people familiar with the matter, Walmart Inc. and other PhonePe shareholders will have to pay nearly $1 billion in tax after the digital payments company shifted its headquarters to India.

The new bill comes as a result of the relocation and increased value of PhonePe Pvt, which Walmart took majority ownership of after acquiring its parent company, Flipkart Online Services Pvt. Now that it has been separated from Flipkart and re-domiciled in India, the fintech firm is raising funds at a $12 billion pre-money valuation from General Atlantic, Qatar Investment Authority, and others. This is triggering a hefty charge, the people said. They declined to be named, as they did not want to discuss a private matter publicly.

Investors including Tiger Global Management have now purchased shares of PhonePe in India at the new price, leading to tax implications of roughly 80 billion rupees for existing shareholders, one source said.

The representatives of Walmart, Flipkart, and Tiger Global did not respond immediately to emails seeking comment. A PhonePe spokeswoman declined to comment.

PhonePe is moving its headquarters to Bangalore, following in the footsteps of online retailer and former parent company Flipkart. This is an unusual step for an Indian startup, as most tech companies with the majority of their operations and business in India have chosen to incorporate in Singapore due to the friendlier tax regime, ease of getting foreign investments, and simpler processes for public debuts on foreign exchanges.

According to a report by India Briefing, over 8,000 Indian startups have incorporated in Singapore since the year 2000. PhonePe's three major moves - relocating to India, carving itself out as a separate entity from Flipkart and raising funds at a high valuation - come at a time when startup firms around the world are struggling to raise funds and facing deflating valuations.

PhonePe's recent shift could be indicative of the digital payments company preparing for a stock market listing in India. According to one source, any payments firm that is listed overseas would likely have difficulty obtaining approval from India's financial and banking regulator, the Reserve Bank of India. The government currently prohibits India-headquartered companies from directly listing on overseas exchanges.

India has a thriving startup ecosystem, with over 26,000 startups and 100 unicorns (startups valued at $1 billion or more). This makes it the third-largest startup ecosystem in the world, according to the Asian Development Bank.