Express legislation is necessary to tax ‘indirect transfers' (as in Vodafone case) to avoid ambiguity in any form. But such legislation ought to have been prospective. This is only in keeping with the accepted norms of taxation policy, says Mr Sherry Oommen, leading tax counsel and tax policy expert, citing comparable laws elsewhere.

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Proposals in the Finance Bill 2012 seek to tax indirect of an asset situated in India, if it derives directly or indirectly its value ‘substantially' from assets located here.

The term ‘substantially' has not been defined and thus could be a matter of protracted litigation, Mr Oommen said. Application of the Australian Capital Gains Tax (CGT) Rules is restricted to non-residents holding direct interests in Taxable Australian Real Property (TARP).

TARP refers to land, leasehold interests in land, and rights to exploit or explore of minerals, oils, gas or natural resources.

No CGT would be leviable on indirect transfer of interests in a resident company with a value not ‘wholly or principally' attributable to Australian real property - for instance financial services.

The UK has introduced similar provisions in its legislation for the oil and natural gas sector, Mr Oommen said.

In China, the State Administration of Taxation (SAT) issued Circular 698 in December 2009.

The circular seems to have been built on the ‘look-through' principle adopted in the Chongqing case in 2009.

Here, tax authorities treated the gain derived by a Singapore company on sale of another Singapore intermediary holding company that held the equity of a Chinese company, as China sourced income.

But Circular 698 was made applicable retrospectively with effect from January 1, 2008, Mr Oommen said.

This is in contrast to the proposals in the Union Budget 2012, which seek to tax indirect disposal of equity interests in India retrospectively from April 1, 1962.

> vinson@thehindu.co.in

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