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

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Q: 8 (IAS/2022)
Which one of the following situations best reflects 'Indirect Transfers' often talked about in media recently with reference to India ?

question_subject: 

Economics

question_exam: 

IAS

stats: 

0,212,229,53,91,85,212

keywords: 

{'indirect transfers': [0, 0, 0, 1], 'transfers': [0, 1, 0, 0], 'foreign company': [0, 0, 0, 2], 'foreign enterprise': [0, 0, 0, 1], 'tangible assets': [0, 0, 0, 1], 'investment': [0, 0, 0, 1], 'assets': [0, 1, 1, 9], 'indian company': [0, 0, 1, 4], 'foreign country': [1, 0, 0, 1], 'profits': [0, 0, 1, 3], 'shares': [0, 3, 3, 6], 'proceeds': [0, 1, 1, 1], 'taxes': [2, 1, 1, 0], 'such assets': [0, 0, 0, 1], 'such shares': [0, 0, 0, 1], 'india': [8, 1, 7, 13], 'media': [2, 0, 0, 2]}

The term "Indirect Transfers" refers to a situation where a foreign company transfers shares that derive their substantial value from assets located in India. In other words, it refers to the transfer of shares of a foreign company that indirectly owns assets in India.

For example, suppose a foreign company owns a subsidiary in India, which in turn owns a valuable asset, such as a piece of land or a building. If the foreign company sells its shares to another foreign entity, and those shares derive their value from the Indian subsidiary and the valuable asset it owns, the transaction is considered an indirect transfer.

The Indian government has been in the news for introducing measures to tax such transactions in order to prevent revenue losses. The issue has been a subject of debate and controversy, with some arguing that such taxes could discourage foreign investment, while others argue that it is necessary to prevent abuse and ensure that foreign companies pay their fair share of taxes.


Preparing for Future Exams: Understanding 'Indirect Transfers' in the Indian Context

Topics to be studied:

  • Meaning and concept of 'Indirect Transfers'
  • Tax implications of Indirect Transfers in India
  • Recent developments and media coverage related to Indirect Transfers in India
  • Foreign Direct Investment (FDI) in India and its regulations
  • Tax treaties and their role in avoiding double taxation
  • Transfer pricing and its importance in cross-border transactions
  • International taxation and its impact on India's economy

Sources:

  • Income Tax Act, 1961
  • Foreign Exchange Management Act, 1999
  • Double Taxation Avoidance Agreements (DTAA)
  • OECD Transfer Pricing Guidelines
  • Economic Survey of India
  • Articles and news reports from reputable sources such as The Economic Times, The Hindu, and Business Standard

NCERT and reference book chapters:

  • Class 12 Economics: Chapter 10 - Foreign Exchange Rate
  • Class 12 Accountancy: Chapter 1 - Accounting for Partnership Firms
  • Indian Economy by Ramesh Singh: Chapter 10 - Foreign Trade and Balance of Payments
  • Corporate Taxation in India by Girish Ahuja and Ravi Gupta: Chapter 4 - Taxation of Foreign Companies

Related concepts:

  • Double taxation
  • Permanent establishment
  • Capital gains tax
  • Base erosion and profit shifting (BEPS)
  • Withholding tax
  • Transfer pricing documentation and compliance