Draft Indirect Transfer Valuation Rules - Shifting of Burden on Indian cos?
CBDT has taken the next big step in clarifying the controversial ‘indirect transfer’ provisions that has, ever since the Vodafone saga, been causing anxiety in the foreign investor community. In a significant development, CBDT has proposed draft rules for determination of Fair Market Value (FMV) and reporting requirement for Indian concerns in respect of indirect transfer provisions u/s 9(1). Accepting Shome Committee recommendations, Finance Act, 2015 had come out with 50% threshold, based on FMV of assets, for the ‘word’ substantially arising in Sec 9(1). The draft rules now seek to clearly spell out the manner in which FMV will be computed and also specify the format of reporting for Indian concerns through or in which the foreign entity holds the assets in India.
Do you think the draft rules will provide much needed certainty in taxation of offshore transactions? What are the practical problems associated with determination of FMV for various assets? Considering that information relating to a foreign entity is sought, is the Government right in assuming ‘availability of information with the Indian concern’ for complying with the reporting norms? Is it fair on part of Government to cast an onerous obligation on Indian concerns for reporting compliance for offshore transactions, when reporting may be undertaken by ‘either’ parties to the transaction?