Which one of the following situations best reflects “Indirect Transfers” often talked about in the 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
▶ Answer & Explanation
Correct answer: D. A foreign company transfers shares and such shares derive their substantial value from assets located in India
Indirect transfer of assets occurs when a foreign company sells shares of another foreign company, but the value of those shares is substantially derived from assets held by an Indian company. This mechanism was used to avoid capital gains tax in India on the transfer of assets situated in India. For instance, if a foreign entity holds shares in a subsidiary that owns significant Indian assets, selling the parent foreign entity's shares could be seen as an indirect transfer of the underlying Indian assets.
Source: UPSC gs1 2022