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BUSINESS MARCH 23, 2011, 1:58 P.M. ET

India to Tax Adidas Insurance Claim

By PRASANTA SAHU And R. JAI KRI SH NA

NEW DELHI –India plans to tax part of an insurance claim made by Adidas AG following a fire that damaged a
warehouse in the country, according to a probe report by the tax department.

Adidas AG received about 900 million rupees ($20 million), while Adidas India Marketing Pvt. received 470
million rupees towards claims against the fire in 2009, according to the report seen by Dow Jones Newswires.

Adidas India told the tax department that since the premium for the global insurance policy was taken out by
Adidas AG, the insurance claim received abroad isn't taxable.

However, the department's investigation found that various email exchanges between executives of Adidas India
and the parent company show that the insurance compensation received abroad belonged to the local unit.

"The entire scheme of things appears to be arranged by the Adidas group in such a way so as to evade paying
taxes on this amount in India," the tax department said in its internal report.

The tax authority's move follows a slew of recent claims over cross-border deals, such as that of Loop Telecom
and Vodafone International Holdings B.V.

Vodafone International, owned by the U.K.'s Vodafone Group PLC, is battling a court case with the tax
department, which is seeking about $2.52 billion for its failure to deduct taxes while paying for Hong Kong-
based Hutchison Whampoa Ltd.'s 67% stake in Indian telecommunications operator Hutchison Essar Ltd (now
Vodafone Essar).

The tax department also alleges that Adidas' local unit isn't cooperating with the tax department on the
information sought by authorities on details such as which company paid the premium for the insurance policy.

The tax department's investigation wing has recommended Adidas India be taxed on the 900 million rupees paid
to Adidas AG.

Adidas India acknowledged that a fire had broken out at its warehouse, but didn't comment on the insurance and
tax claims.

"As a responsible international organization, Adidas complies with the legal and statutory practices defined by
various regulatory bodies of the country we operate in," Andreas Gellner, managing director of Adidas India, said
in an emailed response.

"We will deal with everyone fairly but firmly...Adidas is no exemption," Central Board of Direct Taxes Chairman
Sudhir Chandra told Dow Jones Newswires.

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A tax analyst said there is no reason why an overseas parent company would insure for products that are in
India, which has to be done through the Indian unit.

Broadly, any claim for the loss of goods within India is taxable in the country, Dinesh Kanabar, deputy chief
executive at consulting firm KPMG India, said.

Write to Prasanta Sahu at prasanta.sahu@dowjones.com and R. Jai Krishna at krishna.jai@dowjones.com

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