CMA Final · Direct Tax Laws and International Taxation · Business Restructuring
Indus Tech Ltd (resident) contracts with Orion GmbH, a non-resident that is not its associated enterprise. Indus Tech's associated enterprise, Indus Mauritius Ltd, has a prior agreement with Orion GmbH on the terms of the transaction. How is the Indus Tech–Orion transaction treated under the Income-tax Act, 2025?
The transaction is deemed an international transaction between associated enterprises. A prior agreement between the other person and the associated enterprise is enough, as is terms being determined in substance between them. Associated-enterprise status of the counterparty is not required, and the other person's residence is irrelevant.
- ANot an international transaction, because Orion is not an associated enterprise
- BDeemed to be an international transaction between two associated enterprises, because a prior agreement exists between the other person and the associated enterpriseCorrect
- CAn international transaction only if Orion GmbH is a resident
- DAn international transaction only if the terms are determined in substance, and a prior agreement alone is insufficient
Explanation
A transaction with a non-associated 'other person' is deemed an international transaction if a prior agreement exists between that person and the associated enterprise, or if the terms are determined in substance between them. Either condition suffices, so the last option is wrong. The enterprise or the associated enterprise or both must be non-resident, whatever the other person's residence.
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