Question

UPSC Prelims 2022 Question:

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

  1. 1. An Indian company investing in a foreign enterprise and paying taxes to the foreign country on the profits arising out of its investment
  2. 2. A foreign company investing in India and paying taxes to the country of its base on the profits arising out of its investment
  3. 3. An Indian company purchases tangible assets in a foreign country and sells such assets after their value increases and transfers the proceeds to India
  4. 4. A foreign company transfers shares and such shares derive their substantial value from assets located in India.

Answer (Detailed Solution Below)

Option 4: A foreign company transfers shares and such shares derive their substantial value from assets located in India.

Detailed Solution

Explanation:

  • Indirect transfers refer to situations where when foreign entities own shares or assets in India, the shares of such foreign entities are transferred instead of a direct transfer of the underlying assets in India.

  • When shares of foreign company or interest in any entity incorporated or registered outside India is transferred and if such shares or interest derives its substantial value from assets located in India directly or indirectly, then such transfer is commonly referred to as ‘Indirect Transfer’. In case of such indirect transfer, the income shall be deemed to accrue or arise in India and would be taxable for all including not ordinarily residents as well as non-residents.

Therefore, option (4) is the correct answer.

Subject: Economics| Foreign Trade and Investment

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