Monday , November 20, 2017 |   12:54:13 IST
INTL TAXATION INTL MISC TP FDI LIBRARY VISA BIPA NRI
About Us Contact Us Instant Updates Newsletters
 
NEWS FLASH
 
TP - In absence of segmental information, companies engaged in two different business modules, cannot be adopted as comparables: ITAT (See 'Breaking News') TP - When results for financial year can reasonably be extrapolated, then comparable cannot be excluded solely on ground that they have different financial year endings: ITAT (See 'Breaking News') TP - When TP adjustments suggested by TPO are not in accordance with law and Assessee has also not adopted correct method of benchmarking, such matter calls for restoration: ITAT (See 'Breaking News') TP - No penalty u/s 271G can be levied, if Assessee had complied with directions of TPO and placed on record requisite information to extent same was practically possible: ITAT (See 'Breaking News') DTAA - Any amendment u/s 9(1)(vi) of I-T Act cannot influence definition of 'royalty' as given under respective DTAA: ITAT (See 'Breaking News') I-T - Once telecom company accepts taxability of income received from provisions of telecom services as 'royalty', appeal impugned previously should be dismissed as withdrawn: (See 'Breaking News') Digital economy to the fore again (See 'TII EDIT') Global Forum releases Peer Review Reports on AEOI standards (See 'TII Brief') TP - Income and expenses of only operating nature are to be taken into account for working out Operating Profit of Tested Party from controlled transaction: ITAT (See 'Breaking News') I-T - Mere confirmation of addition in appeal under quantum assessment cannot per se lead to confirmation of penalty: ITAT (See 'Breaking News') DTAA - When Assessee have no business connection in India or Agency PE/Base BE having no no business income, provisions of section 40(a) is not applicable: ITAT (See 'Breaking News') I-T - Assessee cannot be held liable for failure attributable on part of AO in negligency in making enquiries: ITAT (See 'Breaking News') TP - Method of benchmarking and selection of comparables, should not be done merely by quoting judicial pronouncement and without affording opportunity of hearing: ITAT (See 'Breaking News') TP - No ALP adjustment is warranted on international license revenue receivables from AEs: ITAT (See 'Breaking News') TP - Final order of assessment passed by AO on nonexisting entity post order of Writ Court approving Scheme of Amalgamation, is invalid: ITAT (See 'Breaking News') DTAA - Freight income earned by foreign entity from operating ships in international traffic, is not taxable in India, even if feeder vessels are not owned by such company: ITAT (See 'Breaking News')
 
TII SEARCH
 
 
   
Home >>
 

Clarification on Indirect Transfer provisions in case of redemption of share or interest outside India under the lncome-tax Act, 1961
By TII News Service
Nov 07, 2017 , New Delhi

    

GOVERNMENT OF INDIA
MINISTRY OF FINANCE
DEPARTMENT OF REVENUE
CENTRAL BOARD OF DIRECT TAXES
NEW DELHI

CIRCULAR NO

28/2017, Dated: November 7, 2017

Sub: Clarification on Indirect Transfer provisions in case of redemption of share or interest outside India under the lncome-tax Act, 1961

Under the provisions contained in section 9(1)(i) of the Income-tax Act, 1961 ('Act'), all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India or through the transfer of a capital asset situated in India, shall be deemed to accrue or arise in India. Explanations 5, 6 and 7 of section 9(1)(i) further define the scope of said provision.

2. Concerns have been expressed by investment funds, including private equity funds and venture capital funds, that on account of the extant indirect transfer provisions in the Act, non-resident investment funds investing in India, which are set up as multi-tier investment structures, suffer multiple taxation of the same income at the time of subsequent redemption or buyback. Such taxability arises firstly at the level of the fund in India on its short term capital gain/ business income and then at every upper level of investment in the fund chain on subsequent redemption or buyback. The Board has received representations to exclude investors above the level of the direct investor, who is already chargeable to tax in India on such income, from the ambit of indirect transfer provisions of the Act.

3. Addressing such concerns in his Budget speech on 1st February, 2017, the Finance Minister had stated that Category I and Category II Foreign Portfolio Investors (FPI) will be exempted from indirect transfer provisions. It was also stated that a clarification will be issued that indirect transfer provisions shall not apply in case of redemption of shares or interests outside India as a result of or arising out of redemption or sale of investment in India which is chargeable to tax in India.

4. Vide Finance Act, 2Q17, Category I and Category II FPIs have already been exempted from indirect transfer provisions of the Act through insertion of proviso to Explanation 5 to section 9(1)(i) of the Act, with effect from 01.04.2015.

5. There could be situations in multi-tiered investment structures, where interest or share held indirectly by a non-resident in an Investment Fund or a Venture Capital Company or a Venture Capital Fund (hereinafter referred to as 'specified funds'), is redeemed in an upstream entity outside India in consequence of transfer of shares or securities held in India by the specified funds, the income of which have been subject to tax in India. In such cases, application of indirect transfer provisions on redemption of share or interest in the upstream entity may lead to multiple taxation of the same income. In respect of Category I and Category II FPIs though, such multiple taxation will not take place on account of the insertion of proviso to Explanation 5 to section 9(1)(i) of the Act, vide Finance Act, 2017.

6. The matter has been examined by the Board and it has been decided that the provisions of section 9(1)(i) of the Act read with Explanation 5 thereof shall not apply in respect of income accruing or arising to a non-resident on account of redemption or buyback of its share or interest held indirectly (i.e. through upstream entities registered or incorporated outside India) in the specified funds if such income accrues or arises from or in consequence of transfer of shares or securities held in India by the specified funds and such income is chargeable to tax in India. However, the above benefit shall be applicable only in those cases where the proceeds of redemption or buyback arising to the non-resident do not exceed the pro-rata share of the non-resident in the total consideration realized by the specified funds from the said transfer of shares or securities in India. It is further clarified that a non-resident investing directly in the specified funds shall continue to be taxed as per the extant provisions of the Act.

For the purposes of this Circular,

(i) "Investment fund" shall have the meaning assigned to it in clause (a) of Explanation 1 to section 1 15UB of the Act.

(ii) "Venture capital company" and "venture capital fund" shall have the meanings respectively assigned to them in Explanation to clause (23FB) of section 10 of the Act.

[F. No. 500/10/2017-FT&TR-IV]

(Amrit Agrahari)
Under Secretary (FT&TR-IV(1)]

 
 
gmail login
INTL TAXATION INTL MISC TP FDI LIBRARY VISA BIPA NRI TII
  • DTAAs
  • TIEAs
  • Circulars (I-T Act, 1922)
  • Circulars
  • Instructions
  • DRP Panel
  • Administrative Orders
  • Notifications
  • I-T Act, 1961
  • Relevant Portion of I-T Rules,1962
  • Relevant Portion of I-T Act,1922
  • GAAR
  • Equalisation Levy
  • Draft Guidelines
  • Committee Reports
  • FATCA
  • Intl-Taxation
  • Finance Acts
  • Manual on EoI
  • DTC Bill
  • UN Model
  • Miscellaneous
  • Guidance Notes - AEOI
  • OECD Conventions
  • Cost Inflation Index
  • Union Budget
  • Information Security Guidelines
  • Circulars
  • Instructions
  • Notifications
  • Relevant Sections of Act
  • TP Rules
  • Forms
  • Miscellaneous
  • APA Annual Report
  • APA Rules
  • APA FAQ
  • UN Manual on TP
  • Safe Harbour Rules
  • US Transfer Pricing
  • FEMA Act
  • Exchange Manual
  • Fema Notifications
  • Master Circulars
  • Press Notes
  • Rules
  • RBI Circulars
  • FDI Circulars
  • Reports
  • FDI Approved
  • RBI Other Notifications
  • FIPB Review
  • Black Money Act
  • PMLA Notification
  • PMLA Instruction
  • PMLA Bill
  • FM Budget Speeches
  • SEBI
  • Multimodal Transportation
  • Vienna Convention
  • NBFC Reports
  • EXIM Bank LoC
  • Manufacturing Policy
  • FTDR Act, 1992
  • Intellectual Property
  • White Paper on Black Money
  • Posting Policy
  • PMLA Cases
  • Transfer of Property
  • CBR Act, 1963
  • MCA Circular
  • Book Review
  • Limitation Act
  • SSAs
  • EPFO
  • FAQs
  • Acts
  • Rules
  • Guidelines
  • Tourist Visa
  • Notifcations
  • Types of Visa
  • Agreements
  • Arbitration
  • Model Text
  • Relevant Portion of I-T Act
  • Circulars
  • I-T Rules, 1962
  • MISC
  • Notifications
  • Subscribe
  • About Us
  • Contact Us
  •  
     
    A Taxindiaonline Website. Copyright © 2016 Taxindiainternational.com Pvt.Ltd. All rights reserved. | Powered by 4th Dimension