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Manner of determination of fair market value

Posted on 24 May 2016,    
 3810    Share  Report

F No 142/26/2015-TPL
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes

New Delhi, Dated 23rd May, 2016

Subject: Manner of determination of fair market value and reporting requirement for Indian concern-Indirect transfer provisions-section 9(1) of the Income-tax Act, 1961-Draft Rules-reg.

Under section 9 of the Income-tax Act, 1961 (the Act), income arising from indirect transfer of assets situated in India is deemed to accrue or arise in India. The provisions of section 9(1)(i) of the Act provides that if any share 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.

2. The share or interest is said to derive it value substantially from assets located in India, if fair market value (FMV) of assets located in India comprise at least 50% of the FMV of total assets of the company or entity. The computation of FMV of Indian and global assets is to be in the prescribed manner.

3. Further, section 285A of the Act mandates reporting requirement on the Indian concern through or in which the foreign company or entity holds the assets in India. The information to be furnished and its manner is also required to be prescribed.

4. Therefore, the manner of computation of FMV of assets of the foreign company or entity and the reporting requirement by the Indian concern are proposed to be provided through the amendments of the Income-tax Rules, 1962. The draft rules and forms, on which comments and suggestion of stakeholders and general public on the draft rules and forms as above may be sent electronically by 29th May, 2016 at the email address, ustpl1@nic.in in this regard, are as under:

11UB : Fair market value of assets in certain cases

(1) The fair market value of assets (tangible and intangible) as on the specified date, held directly or indirectly by a company or an entity registered or incorporated outside India (hereafter referred to as “foreign company or entity”), for the purposes of clause (i) of sub-section (1) of section 9, shall be computed in accordance with the provisions of this rule.

(2) Where the asset is the share of an Indian company listed on a recognized stock exchange not being the case referred to in sub-rule (2), the fair market value of the share shall be the observable price of such share on the stock exchange:

Provided that where the share is held as part of the shareholding which confers, directly or indirectly, any right of management or control in relation to the aforesaid company, the fair market value of the share shall be determined in accordance with the following formula, namely :-

F No 142/26/2015-TPL
Fair market value = (A+B) /C

Where,

A= the market capitalisation of the company on the basis of observable price of its shares quoted on the recognised stock exchange;
B= the book value of liabilities of the company as on the specified date;
C= the total number of outstanding shares:

Provided further that where, on the specified date the share is listed on more than one recognized stock exchange, the observable price of the share shall be computed with reference to the recognised stock exchange which records the highest volume of trading in the share during the period which is considered for determining the price.

PFA the attached file for more details

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