Suzuki to get tax opinion on Gujarat plant

Suzuki Motor Corporation, the Japanese parent of Maruti Suzuki, is expected to seek an opinion from the Authority of Advance Rulings (AAR) to get clarity on tax implications related to the contentious plant in Gujarat as part of the settlement formula worked out by the Indian company’s board on Saturday.

The proposal is aimed at providing a tax shield to Maruti and insulating it from any potential burden in the future, which can further upset investors.

What probably got the independent directors to join hands in early February was a strong protest from institutional investors which began with half-a-dozen marquee mutual funds. In early February, as reported first by TOI, the fund houses as well as three of the four independent directors dashed off separate letters to Maruti management, questioning the deal. The four independent directors on the board — corporate lawyer Pallavi Shroff, former Ranbaxy chief executive D S Brar, NHAI chairman R P Singh and ex-PricewaterhouseCoopers head Amal Ganguli — are said to have even exchanged notes on the issue, said sources, who did not wish to be identified, given the sensitivity of the matter.

But, Suzuki was opposed to any dilution of the plan, leave alone dropping the proposal as demanded by the institutional investors. This was despite Maruti Suzuki chairman R C Bhargava himself taking up the issue with Suzuki boss Osamu Suzuki. In fact, Bhargava was the one discussing the issue with the protestors as well as Suzuki. 

Seeking Clarity

• Entire capex for the Gujarat plant will be funded by depreciation and equity brought in by Suzuki Motor Corporation 
• The impact of any direct or indirect taxes on account of the contract manufacturing agreement will be assessed before finalizing the agreement 
• Even though not required by law, the board decided, as a measure of good corporate governance, to seek minority shareholders’ approval as stipulated in Section 188 of the Companies Act 2013

News Source: Times of India