Facts
- The applicant, a Dutch company was incorporated on 11 August 2008. On 6 November 2008, it acquired all the shares of an existing Indian company from another group company located in Germany. The shares were acquired for a consideration of INR 100 million.
- Post acquisition, the applicant made a further investment of INR 1100 million in the Indian subsidiary company. Both the companies (Dutch Company and German Company) are ultimately held by another German company with extensive manufacturing operations in Europe.
- The applicant is now proposing to sell the shares of the Indian subsidiary to another non-resident. The issue before the Authority is whether terms of the India – Netherlands Tax Treaty capital gains arising on transfer of shares of the Indian subsidiary to another non-resident is liable to tax in India.
Contentions of the Applicant
- The applicant contended that in terms of Article 13(5) of the tax treaty, sale of shares of the Indian company is not liable to tax in India if such sale is made to a person who is not resident of India. Therefore, capital gain arising on the proposed sale will not be liable to tax in India.
Contentions of the Revenue
- The beneficial owner of the capital gains arising on transfer of Indian company’s shares is the ultimate German holding company. Hence, the provisions of the India-Germany tax treaty will apply and not the India-Netherlands Tax Treaty. The India-Germany Tax Treaty do not provide for any exemption.
- Before acquisition, shares of the Indian company were held by a German company. The interpolation of the Dutch company in November 2008 was a part of the scheme for the avoidance of India tax liability on capital gains.
Ruling of the AAR
Paid content
Become a Basic or Premium Member, or log in if you are already a Basic or Premium member.
