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 of its base 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

APEDIA

UPSC Prelims

2022 • 05 Jun, 2022 • Paper-1

Which one of the following situations best reflects "Indirect Transfers" often talked about in media recently with reference to India?

Correct Answer

(d) A foreign company transfers shares and such shares derive their substantial value from assets located in India

Definitional Framework: Indirect transfer tax provisions aim to tax capital gains arising from the transaction of shares of a foreign entity, if that entity's v......

💡 Analysis & Explanation

Definitional Framework ▼

Indirect transfer tax provisions aim to tax capital gains arising from the transaction of shares of a foreign entity, if that entity's value primarily relies on assets situated within the taxing country's jurisdiction.

Contextual Application ▼

The Vodafone and Cairn Energy cases in India are quintessential examples. A foreign entity sold its shares holding Indian telecommunications assets, bypassing direct asset transfer. Thus, India claimed the right to tax the transaction because the underlying assets providing value were Indian.

Conclusion ▼

Option D perfectly captures the structural mechanism of indirect transfers.

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Which one of the following situations best reflects "Indirect Transfers" often talked about in media recently with reference to India?