International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

India: Exclusion of overseas dividend from indirect transfer provisions

nayak.jpg

jain.jpg

Rajendra Nayak


Aastha Jain

Under the Indian Tax Law (ITL), income arising from any asset in India or from transfer of a capital asset situated in India would be taxable in India. In 2012, the ITL was retroactively amended to introduce provisions for the taxation of indirect transfer (IDT provisions) under which it was clarified that an asset or a capital asset being any share in a foreign company shall be deemed to be situated in India, if such shares derive their value substantially from the assets located in India. Accordingly, transfer of such deemed asset was taxable in India. The legislative intent of such provision was to tax gains having an economic nexus with India, irrespective of the mode of realisation of such gains. Apprehensions were raised by various stakeholders on the overreaching scope of deeming fiction under the IDT provisions, which deems the shares of a foreign company to be situated in India. Concern was raised that the provisions would result in taxation in India of dividend income declared by such foreign company outside India. This was perceived as an unintended consequence of the IDT provisions.

The Central Board of Direct Taxes (CBDT), the apex administrative body for taxation in India, recently issued a circular (Circular 4 of 2015) to clarify that:

  • the IDT provisions would trigger tax for the transaction which has the effect of transferring, directly or indirectly, the underlying assets located in India, as income accruing or arising in India; and

  • declaration of dividend by a foreign company outside India does not have an effect of transfer of any underlying asset located in India. Accordingly, such dividend paid by foreign company would not be taxable in India by virtue of the IDT provisions of the ITL.

This clarification from the CBDT addresses the concern which had arisen on account of the wide scope of the IDT provisions. This is also in line with the intent of the present Indian Government to provide certainty and stability in India's tax regime.

Rajendra Nayak (rajendra.nayak@in.ey.com) and Aastha Jain (aastha.jain@in.ey.com)

Ernst & Young

Tel: +91 80 6727 5275

Website: www.ey.com/india

more across site & bottom lb ros

More from across our site

The German government unveils plans to implement pillar two, while EY is reportedly still divided over ‘Project Everest’.
With the M&A market booming, ITR has partnered with correspondents from firms around the globe to provide a guide to the deal structures being employed and tax authorities' responses.
Xing Hu, partner at Hui Ye Law Firm in Shanghai, looks at the implications of the US Uyghur Forced Labor Protection Act for TP comparability analysis of China.
Karl Berlin talks to Josh White about meeting the Fair Tax standard, the changing burden of country-by-country reporting, and how windfall taxes may hit renewable energy.
Sandy Markwick, head of the Tax Director Network (TDN) at Winmark, looks at the challenges of global mobility for tax management.
Taxpayers should look beyond the headline criteria of the simplification regime to ensure that their arrangements meet the arm’s-length standard, say Alejandro Ces and Mark Seddon of the EY New Zealand transfer pricing team.
In a recent webinar hosted by law firms Greenberg Traurig and Clayton Utz, officials at the IRS and ATO outlined their visions for 2023.
The Asia-Pacific awards research cycle has now begun – don’t miss on this opportunity be recognised in 2023
An intense period of lobbying and persuasion is under way as the UN secretary-general’s report on the future of international tax cooperation begins to take shape. Ralph Cunningham reports.
Fresh details of the European Commission’s state aid case against Amazon emerge, while a pension fund is suing Amgen over its tax dispute with the Internal Revenue Service.