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CBDT issues draft rules to compute FMV of foreign firms

24 May 2016 Evaluate

In order to avoid tax disputes in future, the Central Board of Direct Taxes (CBDT) has taken the next big step in implementing the controversial ‘indirect transfer’ provisions that has dented India’s image among the foreign investor community which led to international companies face huge tax bills in the country. The department has issued a proposed set of rules for computation of the fair market value (FMV) of assets for taxing any indirect transfer of assets abroad. The FMV calculation is critical as it forms the basis of trigger of ‘indirect transfer’ provisions under the income tax law, say tax experts.

As per the proposal, if the asset is the share of an Indian company listed on a recognised stock exchange, the fair market value of the share will be the price of such a share on the exchange. When the share is listed on more than one recognised exchange, the price on the bourse recording the highest volume of trading will be considered. Furthermore, where the asset is the share of an Indian company not listed on a recognised exchange on the specified date, the FMV will the one determined by a merchant banker or an accountant 'in accordance with any internationally accepted pricing methodology for valuation of shares on arm's length basis and increased by the liability.

Stakeholders and general public have been given time till May 29 to electronically send in their comments and suggestions on the draft rules.

This move comes almost a year after finance minister Arun Jaitley had clarified in the 2015-16 budget that indirect transfer abroad between two companies would draw tax if the value of Indian assets of the company concerned on the specified date exceeded Rs 10 crore and these represented at least 50 per cent of the value of all the assets owned by such a foreign company globally.

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