2022 GS Paper I, all questions

UPSC Prelims 2022 · GS Paper I

Question 8: Economy and Social Development

Which one of the following situations best reflects “Indirect Transfers” often talked about in media recently with reference to India ?

aAn Indian company investing in a foreign enterprise and paying taxes to the foreign country on the profits arising out of its investment
bA foreign company investing in India and paying taxes to the country of its base on the profits arising out of its investment
cAn Indian company purchases tangible assets in a foreign country and sells such assets after their value increases and transfers the proceeds to India
dA foreign company transfers shares and such shares derive their substantial value from assets located in India

AnswerUPSC’s answer is (d).

Indirect transfer means taxing a sale of shares of a foreign company when those shares derive substantial value from assets located in India. The issue became prominent with Vodafone's 2007 purchase of Hutchison's Indian telecom interest through an overseas holding company, and the 2012 retrospective amendment to the Income-tax Act that followed. Option (d) states exactly this. The other options describe ordinary investment taxed on profits in the source country.

Why each option is right or wrong
  • (a) Wrong. This is ordinary outbound investment taxed in the foreign country.
  • (b) Wrong. This is ordinary inbound investment with profit taxation, not an indirect transfer.
  • (c) Wrong. This describes trading in overseas tangible assets, unrelated to Indian assets.
  • (d) Correct. An offshore share transfer whose value comes from Indian assets is an indirect transfer.

Answer: UPSC’s key. Explanation: written by UPSC Grade, not by UPSC.

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Source: UPSC, Civil Services (Preliminary) Examination 2022, General Studies Paper I, Series A. The paper on upsc.gov.in.