FMV for indirect transfer

What it does. Section 9(10) looks through a foreign company or entity to the value of what it holds. Rule 11 says how each kind of asset is valued, always by reference to the specified date (defined in rule 10).

Asset by asset

• Listed Indian shares (sub-rule 2). Fair market value is the observable price (rule 10) on the recognised stock exchange. If the shareholding confers, directly or indirectly, any right of management or control, the value is (A + B) / C, where A is market capitalisation on the observable price, B is the book value of the company's liabilities, and C is the number of outstanding shares. If the share is listed on more than one recognised exchange, the exchange with the highest trading volume during the tax year is used.
• Unlisted Indian shares (sub-rule 3). The value determined by a merchant banker or an accountant under an internationally accepted valuation methodology on an arm's-length basis, increased by any liability considered in that determination.
• Interest in a partnership firm or association of persons (sub-rule 4). The entity is valued by a merchant banker or accountant (again increased by liabilities considered). The part equal to capital is allocated in the proportion capital was contributed; the residue is allocated as the partnership agreement provides for distribution on dissolution, and if there is no such agreement, in the profit-sharing ratio. The total allocated to a partner or member is the value of that partner's or member's interest.
• Any other asset (sub-rule 5). The price it would fetch if sold in the open market, as determined by a merchant banker or an accountant, increased by liabilities considered.

All assets of the foreign company or entity (sub-rule 6). Fair market value is A + B in every case in the Table, with A and B depending on the situation: (1) transfer between persons who are not connected persons — A is market capitalisation at the full value of consideration for the transfer, B is the book value of liabilities on the specified date as certified by a merchant banker or accountant; (2) share listed on a stock exchange — A on the observable price there; (3) listed on more than one exchange — A on the exchange with the highest trading volume in the period used for the price; (4) unlisted — A is the entity's value determined by a merchant banker or accountant, B is liabilities considered in that value.

Other points

• If value was fixed on an interim balance sheet (rule 10(b)(ii)), it is modified after the accounts are finalised, and this rule and rules 12 and 235 then apply accordingly (sub-rule 7).
• For an Indian company's shares, or an interest in a firm or AOP, located in India, all assets and business operations are counted, whether in India or outside (sub-rule 8).
• Foreign-currency conversion of rupee values of assets in India uses the telegraphic transfer buying rate on the specified date (sub-rule 9).