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India: Transfer of shares; offshore supply of equipment; permanent establishment

India: Transfer of shares; offshore supply of equipment

The KPMG member firm in India has prepared reports about the following tax developments (read more at the hyperlinks provided below).

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  • Capital gains on indirect transfer of shares not taxable: The Authority for Advance Rulings (AAR) concluded that capital gains arising from the indirect transfer of shares of an Indian company on the sale of shares of a German company were not taxable in India. The German company derived its value substantially from its other companies, whereas its value of assets in its Indian company was 5.4% (i.e., less than the required 50%) and thus did not derive value substantially from the Indian company. The case is: GEA Refrigeration Technologies GmbH. Read a January 2018 report [PDF 474 KB]
  • Payment for offshore supply of equipment: The AAR found that a payment for an offshore supply of equipment to a French company under an “umbrella agreement” was not taxable in India. The AAR observed that the delivery of the equipment took place outside India by means of a “free on board” basis. Furthermore, title to the equipment was transferred outside India, and thus was a clear case of an offshore equipment supply contract. The case is: Michelin Tamil Nadu Tyres Pvt Ltd. Read a January 2018 report [PDF 639 KB]
  • Space for rendering services constitutes permanent establishment: The AAR concluded that a space provided by an organiser to a foreign service provider for rendering services relating to an event (i.e., lighting, sound, video, etc.) constituted a permanent establishment (PE) in India because the space was available at the disposal of the service provider with exclusive right of access, and controlled by it and used for its business. The AAR found a clear link between the place of business and an identifiable geographical point from where its business was done. The AAR noted that the establishment did not need to be enduring or permanent in the sense that it would be in its control forever. The case is: Production Resource Group. Read a January 2018 report [PDF 483 KB]
  • Revenue recognition, real estate developer: The Jaipur Bench of the Income-tax Appellate Tribunal addressed revenue recognition involving a real estate developer. The tribunal concluded that concerning registered sales deeds when the entire amount of consideration is received, the taxpayer does not recognise the entire revenue collected because the taxpayer is required to perform certain specified development activities even after the deeds of sale have been duly executed. The revenue in such cases is recognised on a proportionate basis by applying the percentage completion method. The case is: Vastukar Township Pvt. Ltd. Read a January 2018 report [PDF 603 KB]

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