Paytm founder’s equity purchase raises tax issues.
According to the domestic tax legislation of India, any income earned from the sale of shares in an Indian firm is assumed to have accrued or arisen in India and is thus subject to taxation in India as capital gains. This is the case even if the revenue was not actually earned in India.
NEW DELHI: The purchase of an extra 10.3% of Paytm by Vijay Shekhar Sharma from Antfin (Netherlands) raises a number of tax issues for the Indian government.
Through a fully owned subsidiary, Resilient Asset Management BV, also domiciled in the Netherlands, Sharma is purchasing shares from Antfin (Netherlands). Given that both the seller and the buyer are headquartered in the Netherlands, should the seller pay capital gains taxes in India? Expert opinions range widely.
Any income from the sale of shares in an Indian company is regarded to accrue or arise in India under domestic tax legislation and is therefore subject to tax in India as capital gains.
However, a remedy is provided by the tax agreement between India and the Netherlands, which specifies that gains on the sale of such shares will only be subject to Dutch taxation if they are sold to an Indian resident by a non-resident who also owns 10% of the Indian firm. However, both the buyer and the seller in this instance are non-residents.
According to IndusLaw partner Shruti KP, the seller may not be subject to capital gains tax in India under the India-Netherlands Double Tax Avoidance Agreement (DTAA) since the taxing rights are granted to the Netherlands because both the buyer and the seller are non-resident entities based in the Netherlands.
However, according to other experts, provisions of the Principal Test Rule (PPT) or the General Anti-Avoidance Rule (GAAR) may apply, requiring the seller (Antfin) to pay taxes to Indian authorities.
Since Vijay Shekhar Sharma, a resident, owns 100% of the purchaser entity outside of India, according to Sandeep Sehgal, partner-tax at tax consulting firm AKM Global, this transaction may need to be viewed through the prism of the Principal Purpose Test (PPT) Rule.
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