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CS Professional · Goods and Services Tax (GST) and Corporate Tax Planning · Tax Planning and Location of Business

Hind Textiles Ltd sets up a subsidiary in a low-tax country. The subsidiary has no staff or premises, and the only reason for choosing that location is to obtain a tax benefit. Under section 180, which limb is most directly attracted?

The location limb applies. An arrangement involving the location of an asset, transaction or residence of a party, with no substantial commercial purpose other than a tax benefit, is deemed to lack commercial substance. Tax payment, duration and an exit route are not sufficient tests.

  1. AInvolvement of the location of an asset, transaction or residence of a party without any substantial commercial purpose other than a tax benefitCorrect
  2. BPresence of an arrangement that has existed for less than one year
  3. CPayment of tax by the subsidiary in its country of residence
  4. DExistence of an exit route through transfer of the business

Explanation

Section 180(1)(c) covers the location of an asset, transaction or place of residence of any party that lacks a substantial commercial purpose other than a tax benefit. Tax paid and exit routes are listed in section 180(3) as not sufficient. The duration of the arrangement is likewise insufficient.

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