Q8. Which one of the following situations best reflects “Indirect Transfers” often talked about in media recently with reference to India?
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 India and paying taxes to the country based on the profits arising out of its investment
c) An Indian company purchases tangible assets in a foreign country and sells such assets after their value increases and transfers the proceeds to India
d) A foreign company transfers shares and such shares derive their substantial value from assets located in India
Answer (d)
- Indirect transfers: Its provisions deal with the taxation of transactions wherein even though the transfer of shares took place overseas, the underlying assets were in India. The amendments made in the ITA in 2012 clarified that if a company is registered or incorporated outside India, its shares will be deemed to be or have always been situated in India if they derive their value substantially from the assets located in India. As a result, the persons who sold such shares of foreign companies before the enactment of the Act (i.e., May 28, 2012) also became liable
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