The tax department today notified rules for calculating 'fair market value' of assets located in India in case of indirect transfer by multi-national companies for the purpose of levying tax.
As per the rule, the fair market value (FMV) of listed companies will be computed on the basis of a formula taking into account its market capitalisation, book value of liabilities and total number of shares.
In case of an unlisted company, the FMV would be determined by a merchant banker or accountant as per internationally accepted valuation methodology.
In case the shares are listed on more than one recognised stock exchange, the price would be computed with reference to the recognised stock exchange which records the highest volume of trading in the share during the period considered for determining the price.
As per the Income-Tax Act if any share of or interest in, a foreign company or entity derives its value substantially from the assets located in India, then such share or interest is deemed to be situated in India.
Thereby, any income arising from transfer of such share or interest is deemed to accrue or arise in India.
The share or interest is said to derive it value substantially from assets located in India, if FMV of assets located in India comprise at least 50 per cent of the FMV of total assets of the company or entity.
Also a share or interest is to be deemed to derive value substantially from assets located in India, if the FMV of the Indian asset is more than Rs 10 crore.
Nangia & Co Managing Partner Rakesh Nangia said the rules have addressed the concern of those foreign entities that have various subsidiaries in India.
The notification by Central Board of Direct Taxes said that the Rule would come into effect from the date of publication in the Official Gazette.
Nangia said clarity is needed on the date of applicability of rules, since the indirect transfer provisions are already into force with effect from Fiscal Year 2015-16.
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