AAR Ruling: Capital gains arising upon the transfer of shares of a wholly owned Indian subsidiary by a non resident parent company to a non resident would not be liable to tax as per the India-Netherlands DTAA [KSPG Netherlands Holding B.V.– AAR No. 818 of 2009].
Facts:
KSPG Netherlands Holding B.V. (applicant), is a company incorporated in Netherlands on November 6, 2008 with its registered office in Amsterdam. PG India is the private limited company incorporated under the Companies Act, 1956 on October 26, 2006, which was held by Pierburg GmbH until November 2008. During November 2008, Pierburg GmbH sold its entire shareholding in PG India to the applicant. The applicant, thereafter, made substantial investments in PG India.
Questions before the Authority for Advance Ruling (AAR):
- Whether the applicant would be liable to tax in India on the dividends received by it from PG India as per the provision of the Income Tax Act, 1961 (Act)?
- Whether the applicant would be liable to tax in India on the capital gains that may accrue from the transfer of shares in PG India to another non-resident as per the provisions in the India-Netherlands Double Taxation Avoidance Agreement (DTAA)?
- Whether the transferor would be liable to tax in India on the capital gains that may accrue from the buy-back of shares by PG India?
Provisions of DTAA
Para 5 of Article 13 dealing with capital gains on transfer of shares reads as under:
“5. Gains from the alienation of any property other than that referred to in paragraphs 1,2,3 and 4, shall be taxable only in the State of which the alienator is a resident.
However, gains from the alienation of shares issued by a company resident in the other State which shares form part of at least a 10 per cent interest in the capital stock of that company may be taxed in the other State if the alienation takes place to a resident of that other State. However, such gains shall remain taxable only in the State of which the alienator is a resident if such gains are realised in the course of a corporate organisation, reorganisation, amalgamation, division or similar transaction, and the buyer or seller owns at least 10 per cent of the capital of the other.”
AAR Observation and Ruling:
