INTERNATIONAL TAX - BUDGET 2017

INTERNATIONAL TAX

• Indirect transfer provisions - Clarification

In the Finance Act, 2012 as clarified that an asset or capital asset, being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India. In response to various queries raised by stakeholders seeking clarification on the scope of indirect transfer provisions, the CBDT issued Circular No 41 of 2016.

In order to clarify the issues so raised, it is proposed to amend the said section so as to clarify that the provision shall not apply to any asset or capital asset mentioned therein being investment held by non-resident, directly or indirectly, in a Foreign Institutional Investor, as referred to in clause (a) of the Explanation to section 115AD, and registered as Category-I or Category-II Foreign Portfolio Investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014made under the Securities and Exchange Board of India Act, 1992, as these entities are regulated and broad based. The proposed amendment is clarificatory in nature.

This amendment will take effect retrospectively from April 1, 2012 and will, accordingly, apply in relation to assessment year 2012-13 and subsequent years.

• Special taxation regime for off shore funds under section 9A

Section 9A(3) provides for the conditions for the eligibility of the fund. These conditions, inter-alia, are related to residence of fund, corpus, size, investor broad basing, investment diversification and payment of remuneration to fund manager at arm's length. In respect of corpus of the fund, the condition is that the monthly average of the corpus of the fund shall not be less than INR 1 billion except where the fund has been established or incorporated in the previous year in which case, the corpus of fund shall not be less than INR 1 billion at the end of such previous year. It is proposed to provide that in the previous year in which the fund is being wound up, the condition that the monthly average of the corpus of the fund shall not be less than INR 1 billion, shall not apply.

This amendment will take effect retrospectively from April 1, 2016 and shall apply to the assessment year 2016-17 and subsequent years.

• Exemption of income of Foreign Company from sale of leftover stock of crude oil

As proposed to provide that any income accruing or arising to a foreign company on account of sale of leftover stock of crude oil, if any, from a facility in India after the expiry of an agreement or an arrangement referred to in section 10 (48) of the Act shall also be exempt subject to such conditions as may be notified by the Central Government in this behalf.

This amendment will take effect from April 1, 2018 and will, accordingly, apply in relation to assessment year 2018-19 and subsequent years.

• Interpretation of 'terms' used in an agreement entered into under section 90 and 90A

It is proposed to amend the sections 90 and 90A of the Act, to provide that where any 'term' used in an agreement entered into under sub-section (1) of Section 90 and 90A of the Act, is defined under the said agreement, the said term shall be assigned the meaning as provided in the said agreement and where the term is not defined in the agreement, but is defined in the Act, it shall be assigned the meaning as definition in the Act or any explanation issued by the Central Government.

These amendments will take effect from April 1, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent years.