Question
Q8) Which one of the following situations best reflects “Indirect Transfer” often talked about in media recently with reference to India?
- An Indian company investing in a foreign enterprise and paying taxes to the foreign country on the profits arising out of its investment
- A foreign company investing in India and paying taxes to the country of its base on the profits arising out of its investment
- An Indian company purchase tangible assets after their value increases and transfers the proceeds to India
- A foreign company transfers share and such shares derive their substantial value from assets located in India.
Answer: d
Detailed Explanation
· When foreign entities own shares or assets in India, the shares of those foreign entities are transferred rather than the underlying assets directly. This is known as an indirect transfer. As a result, choice (d) is the right response.
· Retrospective taxation dates back to 2012, when Vodafone Ltd. was assessed tax on a 2007 transaction by the Indian tax authorities.
· The 2012 act revised the IT act in order to retroactively impose tax responsibility on revenue derived from the sale of shares of a foreign corporation (i.e., also applicable to the transactions done before May 28, 2012).
· The 2012 Act’s revisions make it clear that even if a company is registered or formed outside of India, its shares will be considered to be or to have always been situated there if they draw a significant portion of their value from Indian assets.
· As a result, anyone who sold these shares of foreign corporations before the Act’s passage (i.e., May 28, 2012) were also required to pay tax on the proceeds of those sales.
· The “retrospective taxation” that was implemented with the Finance Act of 2012 is repealed by the Taxation Laws (Amendment) Act, 2021.
