Microsoft-TikTok deal wont be taxed in India

New Delhi: Any acquisition by Microsoft of TikTok that includes the video-streaming app’s India business is unlikely to incur tax locally, said officials and experts. Under the controversial 2012 retrospective tax amendment that ensnared Vodafone, indirect transfers of Indian assets are taxable even if deals are executed overseas. However, this is triggered only when the value of the Indian asset is more than half that of the total transaction.Although TikTok had a large subscriber base in India, pegged at 200 million, the value of the business is much below the threshold. The bulk of TikTok’s value is derived from its operations in the US. TikTok was recently valued at $30-50 billion, according to reports.“This transaction will not be taxable as assets in Indian business are below 50%,” an income tax department official said.77426109Experts said tax provisions on indirect transfer of shares or interest in a company only get triggered if specified conditions are met.“Broadly speaking, in case of large transactions, one of the key conditions to be evaluated is whether the value of such assets in India represents at least 50% of the overall value, to fall into the tax net,” said Vikas Vasal, national leader, Grant Thornton in India.Microsoft is looking to acquire all of TikTok’s global business, including operations in India and Europe, the Financial Times reported on Thursday, citing people with knowledge of the matter. One investor told ET that TikTok’s India business could be valued at $5-10 billion. The US company had initially said it was in negotiations with ByteDance, the Chinese owner of TikTok, to explore a purchase of the TikTok service in the US, Canada, Australia and New Zealand. Subsequently, it has sought to widen the ambit of the acquisition plan, the FT said.“In cases where the Indian asset may not represent close to 50% of the assets of the foreign holding, the element of taxation on indirect transfer is unlikely to arise,” said Rohinton Sidhwa, tax partner, Deloitte India.Indirect transfer lawIndirect transfer provisions were introduced via an amendment in 2012 after the Supreme Court ruled in favour of Vodafone over tax levied on its purchase of Hutchison’s business in India in an offshore transaction. The amended section states that all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India or through the transfer of a capital asset situated in India, shall be deemed to accrue or arise in India, subject to the 50% threshold.

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