Indirect transfers refer to situations where when foreign entities own shares or assets in India, the shares of such foreign entities are transferred instead of a direct transfer of the underlying assets in India. There are innumerable permutations to such indirect transfers, many of which have been sought to be taxed by the Indian Government in the recent past. Beginning from the Vodafone case involving a tax demand of approximately USD 2.1 billion, which was followed by knee-jerk amendments to the Income Tax Act annually, to the recent Cairn case involving a tax demand of approximately USD 1.6 billion, the imposition of this tax has taken quite a few twists and turns. This article seeks to summarize and present a brief timeline of the issues related to indirect transfers, including the unintended issues that arose and those that continue to remain unresolved. These unresolved issues present potential concerns for future investments into India and for current foreign investors with investments in India. Further recognizing that unilateral measures by countries in taxing indirect transfers can result in incoherence and uncertainty, the United Nations, International Monetary Fund, Organization for Economic Co-operation and Development and World Bank Group have come out with a draft paper aimed at achieving international consensus on this issue.
Intertax