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

(a)

An Indian company investing in a foreign enterprise and paying taxes to the foreign country on the profits arising out of its investment

(b)

A foreign company investing in India and paying taxes to the country of its base on the profits arising out of its investment

(c)

An Indian company purchases tangible assets in a foreign country and sells such assets after their value increases and transfers the proceeds to India

(d)

A foreign company transfers shares and such shares derive their substantial value from assets located in India

Correct Answer

(d)

Explanation

This term was in news context of the Vodafone taxation case. Answer is “D”.

Microtheme: "BoP,FDI,FPI,External Financing" —
7 questions asked in Prelims in the past.

  1. [2022] Which one of the following situations best reflects “Indirect Transfers” often talked about in media recently with reference to India ?

    • (a) An Indian company investing in a foreign enterprise and paying taxes to the foreign country on the profits arising out of its investment
    • (b) A foreign company investing in India and paying taxes to the country of its base on the profits arising out of its investment
    • (c) An Indian company purchases tangible assets in a foreign country and sells such assets after their value increases and transfers the proceeds to India
    • (d) A foreign company transfers shares and such shares derive their substantial value from assets located in India
    Correct Answer: (D) A foreign company transfers shares and such shares derive their substantial value from assets located in India
  2. [2021] Consider the following:
    1.Foreign currency convertible bonds
    2.Foreign institutional investment with certain conditions
    3.Global depository receipts
    4.Non-resident external deposits
    Which of the above can be included in Foreign Direct Investments?

    • (a) 1, 2 and 3
    • (b) 3 only
    • (c) 2 and 4
    • (d) 1 and 4
    Correct Answer: (A) 1, 2 and 3
  3. [2020] With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic?

    • (a) It is the investment through capital instruments essentially in a listed company.
    • (b) It is a largely non-debt creating capital flow.
    • (c) It is the investment which involves debt-servicing.
    • (d) It is the investment made by foreign institutional investors in the Government securities.
    Correct Answer: (B) It is a largely non-debt creating capital flow.
  4. [2012] Which of the following would include Foreign Direct Investment in India?
    1. Subsidiaries of companies in India
    2. Majority foreign equity holding in Indian companies
    3. Companies exclusively financed by foreign companies
    4. Portfolio investment

    • (a) 1, 2 and 3 only
    • (b) 2 and 4 only
    • (c) 1 and 3 only
    • (d) 1, 2 and 3 only
    Correct Answer: (D) 1, 2 and 3 only
  5. [2011] Both Foreign Direct Investment (FDI) and Foreign Institutional Investor (FII) are related to investment in a country. Which of the following statements best represents an important difference between the two?

    • (a) FII helps bring better management skills and technology, while FDI only brings in capital.
    • (b) FII helps in increasing capital availability in general, while FDI only targets specific sectors.
    • (c) FDI flows only into the secondary market, while FII targets primary market.
    • (d) FII is considered to be more stable than FDI.
    Correct Answer: (B) FII helps in increasing capital availability in general, while FDI only targets specific sectors.
  6. [2010] A great deal of Foreign Direct Investment (FDI) to India comes from Mauritius than from many major and mature economies like UK and France. Why?

    • (a) India has preference, for certain countries as regards receiving FDI
    • (b) India has double taxation avoidance agreement with Mauritius
    • (c) Most citizens of Mauritius have ethnic identity with India and so they feel secure to invest in India
    • (d) Impending dangers of global climate change prompt Mauritius to make huge investments in India
    Correct Answer: (B) India has double taxation avoidance agreement with Mauritius
  7. [2003] With reference to Government of India’s decisions regarding Foreign Direct Investment (FDI) during the year 2001-02, consider the following statements:
    1. Out of the 100% FDI allowed by India in a tea sector, the foreign firm would have to disinvest 33% of the equity in favour of an Indian Partner within four years.
    2. Regarding the FDI in print media in India, the single largest Indian shareholder should have a holding higher than 26%.
    Which of these statements is/are correct?

    • (a) Only 1
    • (b) Only 2
    • (c) Both 1 and 2
    • (d) Neither 1 nor 2
    Correct Answer: (C) Both 1 and 2