SYNOPSIS

DIRECT TAX

SUBMITTED BY SUBMITTED TO

SIDDHARTH PANDEY Mr. RAHUL HEMRAJANI

BA0140061 (FACULTY)

RESEARCH TITLE

TAX IMPLICATIONS ON CROSS BORDER MERGERS AND ACQUISITIONS-INDIAN

PERSPECTIVE

JUSTIFICATION OF TITLE

The Indian Income Tax Act, 1961(ITA) contains several provisions that deal with the taxation
of different categories of mergers and acquisitions. In the Indian context, M&A can be
structured in different ways and the tax implications vary based on the structure that has been
adopted for a particular acquisition.

Income generated overseas could be send back to the Indian Company in the form of interest,
royalties, service or management fees, dividends, capital gains. Such income when repatriated to
the Indian Company by the International Holding Company (IHC) or to the IHC by the target
company would attract double taxation.

Tax issues arise in cross border deals when two different jurisdictions seek to tax the same sum
of money or income or the same legal person thereby resulting in double-taxation. Many
countries are aware that double taxation acts as a disincentive for engaging in any cross border
trade or activity. Therefore with the primary view to encourage mutual cooperation, trade and
investment, the countries enter into bilateral Double Taxation Avoidance Agreements (DTAA) to
limit their taxing jurisdictions voluntarily through self-restraint.
Through the Finance Act, 2012, the Indian legislature had introduced indirect transfer
provisions. These provisions require that gains arising from the transfer of shares of a
company incorporated outside India would be taxable in India if such shares substantially
derive their value from assets located in India. The introduction of these provisions in the ITA
has been widely debated by various participants of the Indian economy. The provisions were
introduced after the Supreme Courts decision in the Vodafones case. Consequently in 2012,
the Indian legislature amended Section 9(1) (i) of ITA by adding an additional explanation
clarifying that an offshore capital asset would be considered to the place to which for purposes
of legal jurisdiction or taxation a property belongs to India or if it substantially derives its
value whether directly or indirectly from assets situated in India after the 2012 Amendment.

SCOPE AND OBJECTIVE

The scope of this paper is to examine tax laws that govern the cross border deals involving India
which has been a debate on taxation issues has led to a few amendments by virtue of the Finance
Act, 2008 and later in 2012.

RESEARCH QUESTION
Whether a non-resident seller is liable to tax in India on sale of shares of the foreign
company?
Whether an Indian company can be treated as agent of the non-resident purchaser and
held liable for deduction of tax? Can the law impose tax retrospectively?

PRIMARY SOURCES

Statutes reffered

The Indian Income Tax Act, 1961

Finance Act, 2008
Finance Act, 2012

SECONDARY SOURCES

Articles reffered
 Taxation of Cross Border Mergers and Acquisitions, 2010 Edition, KPMG United States
available, at
http://kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/Tax-MA-
2010/MA_Cross-Border_2010_India.pdf
Cross Border Business Reorganization: Indian Law Implications, Aniket Singhania &
Vaibhav Shukla, available at, www.itatonline.org

K.R.Girish and Himanshu Patel, KPMG, Deals: India wants more taxes from cross-
border M&A, February 19, 2008, International Tax Review, available at,
www.tpweek.com/articles/why-foreign-institutional-investors...not...tax/arvogkym

Gupta, Sayantan, Cross-Border Mergers and Acquisitions: Addressing the Taxation

Issues from an Indian Perspective (December 4, 2008). Corporate Professionals Today,
CPT, Vol. 13. No. 6, p. 525, 2008. Available at,
SSRN: https://ssrn.com/abstract=1311102