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SUBSCRIPTION OF SHARES VIS--VIS TRANSFER PRICING AND RELATED ISSUES: CRITICAL ANALYSIS OF THE LAW

I. BACKGROUND

During !"#-"$% &''i(i)n* () (+, in ) , )/ (+, ) 0&ni,* )n'u (ing in(,rn&(i)n&1 (r&n*& (i)n*& )un(,' () R* 2!%!!! r)r,. " T+,r, i* & gr)3ing 0,r ,0(i)n (+&( *u + &'4u*( ,n(* &r, )/(,n+)*(i1, in n&(ur,. R, ,n(15 & n,3 ,&*ur, )/ &'4u*( ,n( +&* ) , () /)r, 3+i + +&* r, ,i6,'u + &((,n(i)n /r) (+, 0r,** &* 3,11 &* (&7 0r& (i(i)n,r*. T+,r, +&6, 8,,n &*,* 3+,r, (+, (&7',0&r( ,n( +&* *)ug+( () (&7 un',r6&1u&(i)n )/ *+&r,* i**u,' 85 (r,&(ing *u8* ri0(i)n )/ *+&r,*&n in(,rn&(i)n&1 (r&n*& (i)n. A* r,0)r(,' in (+, 0r,**% S+,11 In'i& Pri6&(, L('. 9 S+,11 In'i&i**u,' *+&r,* &( R* "! 0,r *+&r, 98&*,' )n 6&1u&(i)n 85 &n in',0,n',n( ) 0&n5< () i(* 0&r,) 0&n5 S+,11 G&* BV. T+, (&7 &u(+)ri(i,* )n(,n',' (+&( S+,11 In'i& +&' un',r-0ri ,' i(* *+&r,*&n' ',(,r in,' & 6&1u, )/ R* "=# 0,r *+&r,% (+,r,85 (r,&(ing (+, *+)r( /&11 )/ &00r)7i &(,15 R">%!!! r)r, &* & 1)&n ,7(,n',' 85 (+, In'i&n *u8*i'i&r5 () i(* )6,r*,&* 0&r,n(. T+, Tr&n*/,Pri ing O//i ,r 9 TPO;< +,1' (+&( (+i* *+)r(/&11 &1)ng 3i(+ in(,r,*( & ru&81, (+,r,)n *+)u1' 8r)ug+( 3i(+in (+, & 8i( )/ (&7&(i)n. S+,11 In'i& +&* 0r,/,rr,' & 3ri( 0,(i(i)n 8,/)r, (+, H)n;81,B) 8&5 Hig+ C)ur( in (+i* r,g&r'.

T+,r, &r, *) , 6&ri&n(* )/ (+, &8)6, ,n(i)n,' &'4u*( ,n( &* 3,11. In (+, &*, )/ V)'&/)n, In'i&S,r6i ,* P6(. L('. 9 VIPL;#% >. A )r'ing15% (+,'i//,r,n , 3&* )n*i',r,' () 8, ',, ,' 1)&n 85 VIPL () VHL% )n 3+i + n)(i)n&1 in(,r,*( &( (+,r&(, )/ "#.> 0,r &nnu 3&* &1*) 1,6i,'.#

1 S&n()*+ Ti3&ri% Tr&n*/,r 0ri ing in ) , &'4u*( ,n(* ', 1in, "$ in !"#-"$% Fin&n i&1 E70r,**% ?&r + "!% !"$%+((0: 333./in&n i&1,70r,**. ) n,3* (r&n*/,r-0ri ing-in ) ,-&'4u*( ,n(*-', 1in,-"$-in- !"#"$ " # ##!2 +((0: 333.1,&0ri'g,. ) 30- )n(,n( u01)&'* !"$ ! I**u,-)/-S+&r,-85-In'i&n-Su8*i'i&r5-()-P&r,n(-C) 0&n5-I*-(+,r,-&n5-Tr&n*/,r-Pri ing-i 01i &(i)n.0'/ 3 supra N)(, "

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T+, i**u, +&* 8, ) , *) )n(,n(i)u* (+&( (+, C+&ir &n )/ S+,11 gr)u0 )/ ) 0&ni,* +&*r,0)r(,'15 *&i' (+&( *u + &n &'4u*( ,n( i* ...a tax on foreign direct investment... $ T+, &((,r i*urr,n(15 0,n'ing &( 'i//,r,n( *(&g,* )/ 1i(ig&(i)n &11 )6,r (+, )un(r5 3i(+)u( &n5 )n 1u*i6,*)1u(i)n &( +&n'. In (+i* 1ig+(% i( i* i 0,r&(i6, (+&( &n ,7+&u*(i6, &n&15*i* &8)u( (+, ,r&*, i* un',r(& ,n () un',r*(&n' (+, 1&3 8,((,r. P&r( II )/ (+, &r(i 1, ,701&in* (+, *(&(u()r

0r)6i*i)n* in r,1&(i)n () TP. Fur(+,r )r,% (+, 0)*i(i)n* (& ,n 85 8)(+ (+, (&7 ',0&r( ,n( &* 3,11&* &**,**,, +&6, 8,,n &n&15 ,' in 1ig+( )/ (+,*, 0r)6i*i)n* &n' 4u'i i&1 0r, ,',n(*. P&r( I'i* u**,* (+, r,1&(,' i**u, )/ *, )n'&r5 &'4u*( ,n(*. An &((, 0( +&* 8,,n &', () un',r*(&n'(+, )n ,0( &n' (r& , i(* ,7i*(,n , in (+, In ) , T&7 A (% "@2" 9 (+, A (;

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3,11 *,((1,'% n)( 8,ing in ) , 0,r *,% '),* n)( &((r& ( (+, 1,65 )/ (&7 un',r (+, 0r)6i*i)n* )/ (+,A (.

W+&( i* &n in(,rn&(i)n&1 (r&n*& (i)n +&* 8,,n ',/in,' un',r (+, A (> &* & (r&n*& (i)n 8,(3,,n (3)

)r )r, &**) i&(,' ,n(,r0ri*,*% ,i(+,r )r 8)(+ )/ 3+) &r, n)n-r,*i',n(*% in (+, n&(ur, )/:

9&< Pur +&*, )r *&1, )r 1,&*, )/ (&ngi81, &n' in(&ngi81, 0r)0,r(598< Pr)6i*i)n )/ *,r6i ,*9 < L,n'ing )r 8)rr)3ing )/ )n,59'< ?u(u&1 &gr,, ,n( )r &rr&ng, ,n( )n &11) &(i)n )r &00)r(i)n ,n( )r (+, &n5 )n(ri8u(i)n

)/ )*( )r ,70,n*,*9,< An5 )(+,r (r&n*& (i)n +&6ing & 8,&ring )n (+, 0r)/i(*% in ) ,% 1)**,* )r &**,(*.

On, &5 n)(i , (+&( (+, ',/ini(i)n )/ in(,rn&(i)n&1 (r&n*& (i)n; i* 6,r5 3i', &n' &((, 0(* ())6,r ,6,r5 1i ,15 (r&n*& (i)n (+&( &5 (& , 01& , 8,(3,,nassociated enterprises .

I( i* (+, r,1&(i)n*+i0 in (+, n&(ur, )/ &**) i&(,' ,n(,r0ri*, (+&( g)6,rn* (+, TP r,gu1&(i)n* &r)un' (+, 3)r1'. In In'i&% *, (i)n @ A )/ (+, A ( ',/in,* (+, (,r &**) i&(,' ,n(,r0ri*,; in &6,r5 8r)&' &nn,r. I( r,/,r* () (3) *i(u&(i)n*. In (+, /ir*( *i(u&(i)n2% )n, ,n(,r0ri*, 'ir, (15 )r in'ir, (15 0&r(i i0&(,* in (+, &n&g, ,n( )r )n(r)1 )r &0i(&1 )/ (+, )(+,r ,n(,r0ri*,. T+, *, )n'*i(u&(i)n r,/,r* () & *i(u&(i)n 3+,n (+, *& , 0,r*)n 'ir, (15 )r in'ir, (15 0&r(i i0&(,* in (+,

&n&g, ,n( )r )n(r)1 )r &0i(&1 )/ (+, (3) ,n(,r0ri*,*. I( i* in(,r,*(ing () n)(, (+&( (+,',/ini(i)n i* *i i1&r () (+, ',/ini(i)n &* )n(&in,' in Ar(i 1, @ )/ (+, OECD ?)',1 C)n6,n(i)n.Fur(+,r )r,% (+, A ( +&* *u001, ,n(,' (+, &8)6, ',/ini(i)n 85 ,n1i*(ing *,6,r&1 *i(u&(i)n* un',r 3+i + (3) ,n(,r0ri*,* *+&11 8,deemed () 8, &**) i&(,' ,n(,r0ri*,*.=

T+, Ar ;* 1,ng(+ 0ri , i* () 8, ',(,r in,' 85 &n5 )n, )/ (+, 0r,* ri8,' ,(+)'*. T+, (&7 0&5,r &n *,1, ( (+, )*( &00r)0ri&(, ,(+)'* () 8, &001i,' () &n5 gi6,n (r&n*& (i)n% 8u( *u + *,1, (i)n+&* () 8, &', 85 (& ing in() & )un( (+, /& ()r* 0r,* ri8,' in (+, (r&n*/,r 0ri ing r,gu1&(i)n*

5 S, (i)n @ B% In ) , T&7 A (% "@2"6 S, (i)n @ A9"

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3i(+ & 6i,3 () &11)3 & ',gr,, )/ /1,7i8i1i(5 in &')0(ing (+, &r ;* 1,ng(+ 0ri ,% & 6&ri&n&11)3&n , )/ > +&6, 8,,n 0r)6i',' un',r (+, (r&n*/,r 0ri ing r,gu1&(i)n.

T+, 0r,* ri8,' ,(+)' /)r ',(,r ining i( i* &* /)11)3*:-

9&< C) 0&r&81, un )n(r)11,' 0ri , ,(+)' 9CUP?2 SOT " 9?u

A1*) i( i* 3)r(+3+i1, () 0&5 &((,n(i)n () (+, /)11)3ing )8*,r6&(i)n* &', in )n(,7( )/ &001i &8i1i(5 )/ TP r,gu1&(i)n* in (+, Eng1i*+ &*, )/ *metalco >7 v &8C :$2

transactions involving mone "hich are not naturall described as +the giving of business

facilities are not "ithin the scope of the relevant statutor provisions and that a subscription for

ordinar shares in an associated compan is not naturall so described and is not "ithin the statutor net, but that is not, the sa , a reason for excluding transactions "hich can naturall be

44 L)3r5 9In*0, ()r )/ T&7,*< 6. C)n*)1i'&(,' A/ri &n S,1, (i)n Tru*( L('. Q"@$! = ITR 9Su00.< == (+, H)u*, )/ L)r'* in Eng1&n'45 A*i&(i O75g,n L('. 6 DCIT Q"@@$ $@ ITD #>> 9C&1