A foreign company (F1) entered into an agreement with another foreign compan
y (F2). For this reason, the subsidiary of F1 Indian company (I1) has made a sale of certain assets/division to the foreign company F2. The consideration for the sale shall be paid by the F2 to the F1. F1 will then make the payment to I1.
So here I want to know the FEMA compliance required in this transaction as well as the tax implications of the same.
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International tax and FEMA compliance
Replies (1)
This transaction requires ensuring Arm's Length Pricing to satisfy both Transfer Pricing norms and FEMA regulations. The triangular payment flow (F2 paying F1, then F1 paying I1) is non-standard and should be vetted by your Authorized Dealer (AD) bank to ensure compliance with FEMA's receipt of consideration rules. Tax-wise, I1 must compute capital gains—potentially under slump sale provisions—and ensure proper documentation is maintained for potential transfer pricing audits.
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