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
Correct Answer
Explanation
Option (D) is correct because "Indirect Transfers" refer to transactions where foreign entities transfer shares of an offshore company that derives its "substantial value" from underlying assets located in India, making the resulting capital gains taxable in India. Option (B) is the most tempting wrong choice as it describes standard Foreign Direct Investment (FDI) and tax residency, but it fails to capture the specific "indirect" mechanism of transferring Indian assets through offshore share sales. The core concept tested is the taxation of capital gains on offshore transactions involving Indian underlying assets, a legal framework famously highlighted by the Vodafone-Hutchison tax dispute.
International TaxationIndirect Transfers, Tax AvoidanceIndirect TransfersIndiaforeign companysharesassetssubstantial valueVodafone tax case