Share transfers set to be taxed | india | Hindustan Times
Today in New Delhi, India
May 26, 2017-Friday
-°C
New Delhi
  • Humidity
    -
  • Wind
    -

Share transfers set to be taxed

The government is likely to announce measures in budget 2012-13 that will empower authorities to tax companies for acquiring assets in India even if the deal is concluded overseas, Gaurav Choudhury reports. Plugging the loophole

india Updated: Mar 16, 2012 12:52 IST
Gaurav Choudhury

The government is likely to announce measures in budget 2012-13 that will empower authorities to tax companies for acquiring assets in India even if the deal is concluded overseas.


The measure, termed as General Anti Avoidance Rule (GAAR) in technical parlance, will empower the income tax (I-T) department to impose taxes on transactions involving share transfers between two non-residents, if at least 50% of the underlying assets are in India.

Currently, the I-T Act does not have any provisions that authorise the department to study deal structures and "look through" subsidiaries in multi-jurisdictional transactions.

The move is a direct fallout of the recent Supreme Court judgment which ruled that British telecom giant Vodafone Plc wasn't liable to pay taxes for a transaction that it inked in 2007 to acquire a majority stake in mobile phone operator Hutchison Essar.http://www.hindustantimes.com/Images/Popup/2012/3/05_03_biz5.jpg

The I-T department had slapped the telecom giant with a Rs 11,218-crore tax bill after it acquired 67% stake in Hutchison Essar for $11.1 billion ( about Rs 55,000 crore) in 2007.

The I-T department argued that although Vodafone made the payment to Hong Kong-based Hutchison's subsidiary in Cayman Islands, it was essentially a transfer of an Indian asset and, therefore, Vodafone should have deducted tax at source when it made the payments to Hutchison.

The SC ruled that the deal was an offshore transaction which fell outside India's territorial tax jurisdiction, hence not taxable.

The government is likely to use the budget to plug the loophole as it stands to lose potential tax revenues of thousands of crores of rupees from prospective mergers and acquisitions involving Indian companies.

"It is likely that provisions of a few sections in the I-T Act will be amended in this year's budget to expand the scope to include transfer of capital asset causing indirect transfer of interest in Indian investments as proposed in the Direct Taxes Code (DTC)," a government source, who did not wish to be identified, said.

With the roll-out of DTC delayed until at least 2013-14, the government wants to use the 2012-13 budget to fast-track the international tax provisions in 2012-13 itself through appropriate amendments in the Income Tax Act.