Tax shock, volatile stocks, and courtroom battle—Hindustan Unilever Limited faces defining moment

Hindustan Unilever Limited (HUL) has taken legal action against a tax demand of Rs 962.75 crore imposed by the Income Tax Department, filing a plea in the Bombay High Court. This dispute centers around the acquisition of Intellectual Property Rights (IPR) from GlaxoSmithKline Consumer Healthcare (GSKCH) in 2020, a deal worth Rs 3,045 crore. The Income Tax Department contends that HUL failed to deduct Tax Deducted at Source (TDS) on this transaction, leading to a tax demand that includes Rs 329.33 crore in interest. This legal battle could set a significant precedent for cross-border mergers and acquisitions in India.

Hindustan Unilever Limited Faces Major Tax Demand Over Acquisition Deal

The tax notice concerns the acquisition of health food and drinks brands such as Horlicks, Boost, Maltova, and Viva from GSKCH. Authorities argue that Hindustan Unilever Limiteddid not comply with the Income Tax Act of 1961, which mandates TDS deductions on certain transactions. As a result, Hindustan Unilever Limited faces a tax demand that raises the stakes in court. If the court sides with the tax authorities, it could have broader implications for similar acquisitions and corporate tax strategies in India.

Hindustan Unilever Limited Defends Its Position Based on Judicial Precedents

Hindustan Unilever Limited argues that the tax demand is not justified, asserting that the location of intangible assets, like trademarks and brands, should be linked to their owner’s location and not the buyer’s. Relying on existing judicial precedents, the company believes that income generated from the sale of such assets by a foreign entity should not be taxed in India. If upheld, this interpretation could significantly impact future cross-border transactions involving intangible assets.

Impact on Hindustan Unilever Limited and Broader Implications

Despite the legal challenge, HUL has indicated that there should be no significant financial implications for the company at this stage. However, the outcome of the Bombay High Court ruling will be closely watched by multinational corporations and legal experts. A ruling in favor of Hindustan Unilever Limited could reshape tax policies for cross-border mergers and acquisitions, particularly concerning intangible assets.

Expert Opinion – The Stakes Are High for Hindustan Unilever Limited

Experts have differing views on HUL’s prospects. Some tax professionals believe the company’s reliance on judicial precedents could lead to a favorable ruling. Others suggest that the case could set a new benchmark for determining the taxability of intangible assets in India. If Hindustan Unilever Limited wins, it could bring greater clarity and fairness in how tax laws are applied to multinational transactions.

Hindustan Unilever Limited Stock Performance Reacts to Legal Developments

HUL’s stock has shown volatility amid the tax dispute. Currently, the stock is trading at ₹2,932.95, down 0.79% over the past 24 hours but up 16.80% over the past year. Analysts offer mixed predictions, with potential price moves up to ₹3,375 depending on market conditions and the case’s outcome. The company’s financial stability is also underscored by its current market capitalisation of ₹6.89 trillion and a low beta coefficient of 0.52, indicating relative stability amidst market fluctuations.

The outcome of Hindustan Unilever Limited’s plea in the Bombay High Court against the Rs 963 crore tax demand could be pivotal for both the company and India’s broader corporate landscape. Investors are closely watching how this legal and financial challenge unfolds, which could have far-reaching consequences for taxation policies involving cross-border deals and intangible assets.