Which one of the following situations best reflects “Indirect Transfers” often talked about in media recently with referece to India?
[UPSC Civil Services Exam – 2022 Prelims]
(a) An Indian company investing in a foreign enterprise and paying taxes to the foreign country on the profits arising out of its investment.
(b) A foreign company investing in Indian and paying taxes to the country of its base on the profits arising out of its investment.
(c) An Indian company purchases tangible assests in a foreign country and sells such assets after their value increases and transfers the proceeds to India.
(d) A foreign compnay transfers shares and such shares derive their substantial value from assest located in India.
Answer: (d)
Explanation:
- The provisions of indirect transfer focus on taxing transactions where shares were transferred abroad, but the underlying assets were in India.
- Indirect transfer happens when foreign entities own assets in India, and instead of directly transferring the assets, they transfer the shares of these entities. Hence, statement 4 is correct.
- In 2012, the Indian government introduced retrospective indirect transfer provisions to bring under the tax net transactions like Vodafone Group’s acquisition of Hutchison Essar in 2007, which acquired a Cayman subsidiary owned by Hutchison International.
- Only indirect transfer transactions where over 50% of the underlying assets are in India are subject to capital gains tax in India, but the clarifications also expanded the tax to funds, including those outside India.
