August 17 2021

Parliament Passes Bill Withdrawing Retrospective Tax on Indirect Transfers

Source: IBFD Tax Research Platform News

Both the lower and upper houses of Parliament have passed the Taxation Laws (Amendment) Bill, 2021. The Bill was introduced in the Lower House on 5 August 2021, and passed in the Lower House on 6 August 2021 and the Upper House on 9 August 2021. The Bill is awaiting presidential assent and is expected to become law in the coming weeks.

The issue of taxability of gains arising from the transfer of assets located in India through the transfer of shares of a foreign company (hereinafter referred to as "indirect transfer of assets") was a subject matter of protracted litigation. In order to give rest to the matter, the government passed the Bill to withdraw the retrospective amendment to the indirect transfer provision in section 9 of the Income Tax Act, 1961 which was originally introduced in the 2012 Union Budget. The indirect transfer provision will now apply prospectively.

The development comes after major setbacks for the government in arbitration cases involving retrospective tax demands contested by Cairn Energy and Vodafone.

As per news reports, there are about 17 companies that are impacted by the indirect transfer of assets provision, including Vodafone, Cairn Energy and WNS. The government is yet to prescribe the rules around the withdrawal of indirect transfer of assets litigation, and the procedure of how companies can go about it. Several companies have already reached out to the government to understand the precise amendments and rules to settle the matter.