Indian court: Sanofi doesn't owe taxes on Shantha merger

Sanofi ($SNY) snapped up India's vaccinemaker Shantha Biotechnics back in 2009, and with it a portfolio of new vaccines. What the company didn't count on was Indian tax officials demanding more than $185 million in capital gains tax on the acquisition from Sanofi India.  

An Indian high court on Friday quashed India's income tax department's claim that Sanofi owed the money in relation to the merger. The income tax department ordered the payment in 2010 and--three years later--the French drugmaker landed a favorable judgment.

"There is no material to conclude that there is a design or stratagem to avoid tax," justices Goda Raghuram and M.A. Ramachandra Rao said in their judgment, as quoted by PharmaBiz. "The capital gain arising as a consequence of the transaction in issue is chargeable to tax; and the resultant tax is allocated to France (not to India) under Double Taxation Avoidance Agreements."

Sanofi's acquisition of Hyderabad-based Shantha was valued around €550 million ($730.5 million). The company's vaccine division Sanofi Pasteur purchased ShanH, a subsidiary of Merieux Alliance, which owned 80% of Shantha. Shantha made vaccines for hepatitis B, diphtheria, cholera and tetanus.

The income tax department said Sanofi owed tax because shares of the Indian company were being transferred and were therefore subject to Indian tax; the merger was transacted in France.

India's Supreme Court knocked down a similar case last year when the income tax department demanded $2.2 billion in tax from British telecom firm Vodafone over its acquisition of Hutchison Whampoa's Indian cellular business in 2007, Reuters reports.  

- read the PharmaBiz piece