India launches tax probe into Kraft's $19.6-bn Cadbury acquisition

The finance ministry has launched a probe to find out whether the $40-billion US foods giant Kraft Foods is liable to pay taxes for its $19.6-billion acquisition of British confectioner Cadbury Plc, The New York Times' DealBook blog reported yesterday.

Illinois-based Kraft had acquired London-based Cadbury in February 2010 in one of the most acrimonious takeovers in the UK's corporate history to create the world's largest chocolatier with $50 billion in annual sales. (See: Shareholders approve Kraft's acquisition of Cadbury)

The acquisition included Cadbury's Indian subsidiary, Cadbury India,  among the UK company's top revenue earners in emerging markets.

The Indian probe comes after a public interest litigation (PIL) filed late last year by social activist Ved Prakash in the Delhi High Court, seeking action against Kraft for avoiding taxes on the acquisition involving the sale of Cadbury shares and assets in India.

According to Prakash's lawyer Gaurang Kanth, the amount of tax owed to the Indian government by Kraft could not be estimated, but it would be substantial, and he has listed out Cadbury brands, goodwill, franchise, market share, customer lists, and market value, among its assets.

In response to the PIL, the Delhi High Court has directed the finance ministry to probe whether Kraft has evaded paying taxes in India for its acquisition of Cadbury.