Vodafone and Sanofi faced the same charge: that an offshore share sale was, in substance, a transfer of Indian assets and so taxable in India. They reached opposite results, and the difference was the treaty. Vodafone's exposure turned on a retrospective change in domestic law. Sanofi's was answered by the treaty it had selected, which placed the gain outside the Indian charge. The case is the clearest illustration of a single point: the holding jurisdiction's treaty can decide the outcome.
The deal
In 2009 Sanofi Pasteur Holding, of France, acquired the entire share capital of ShanH, a French holding company, from two French sellers. ShanH held roughly eighty per cent of Shantha Biotechnics, a vaccine maker based in Hyderabad. The transaction was, on its face, the purchase of a French company's shares by one French entity from others. Beneath it sat an Indian operating business, which is what drew the tax authority's attention.
What happened
The authority treated the deal as an indirect transfer of Indian assets and sought capital-gains tax. Sanofi disputed it. In February 2013 the Andhra Pradesh High Court decided for Sanofi. It held that under the India–France treaty the gain was taxable only in France, the state of residence of the parties, and that the 2012 retrospective amendment to the domestic law did not displace that treaty allocation. The gain fell to France, and the Indian charge did not hold.
Where the result came from
The same indirect-transfer exposure that caught Vodafone ran through this deal. What changed the result was the treaty. The India–France treaty allocated the gain on the shares to the state of residence, and the structure sat squarely within it. Two further things supported the outcome. The holding company was a genuine joint-venture vehicle with a real history, not a shell assembled for the sale, so substance was present. And the allocation it relied on was a mainstream one, the residence-state rule found in the OECD model, not an exotic reading. Selection and substance worked together.
The inverse lesson: secured, not avoided
Here the question runs the other way from most case studies. The outcome was not avoided after the fact but secured in advance, and the treaty secured it. Sanofi held through a jurisdiction whose treaty with India placed the gain beyond the Indian charge, and that choice, made at entry, decided the dispute years later. The lesson is not how to escape an exposure once it appears. It is that the treaty is chosen at the start, and the choice is doing work the investor may never see until a dispute arrives.
The lessons
- The holding jurisdiction's treaty can decide the outcome. The same transaction taxed under one treaty can be exempt under another. Choose the treaty deliberately at entry, for what it allocates and where, not by habit or reputation.
- Substance and selection work together. The treaty answered the charge because the holding company was genuine. A favourable treaty over a hollow structure is the weak position; a favourable treaty over real substance is the strong one.
- A past result is not a present template. Sanofi was decided on the law and treaties of its day. India has since codified indirect-transfer taxation, tightened substance, and renegotiated the treaties that allocated these gains. Read the case for the principle, and check the current position before relying on the mechanics.
- Map the exposure the buyer carries. As in every indirect transfer, the charge can reach the buyer through a withholding obligation. Allocate it in the agreement, whichever treaty applies.
The arc
Sanofi also shows how India corrects. The courts upheld the treaty allocation against the revenue's claim, applying the law as written. Where the 2012 retrospective amendment overreached, India repealed it in 2021 and offered to settle the affected matters, Sanofi's among them. The treaty held in court, and the legislative overreach beside it was later withdrawn. India taxing indirect transfers at all is, in any event, no longer unusual: reaching offshore transfers of companies rich in local assets is now reflected in the OECD and United Nations models and in many states' domestic law. A jurisdiction is judged by how it corrects a misstep, and on this record India reads well.
Frequently asked questions
Did Sanofi win by avoiding Indian tax artificially?
No. The Andhra Pradesh High Court found a genuine French holding structure with a real history, and applied the India–France treaty's ordinary allocation of the gain to the state of residence. The result followed from a real structure and a mainstream treaty rule, not from an artificial device.
Would the same structure produce the same result today?
Not necessarily. Since 2012 India has codified the taxation of indirect transfers, strengthened its substance and anti-avoidance rules, and renegotiated key treaties. The principle that treaty selection matters endures; the specific mechanics that decided Sanofi must be checked against the current law and the live treaty.
Is choosing a treaty the same as treaty shopping?
Choosing a holding jurisdiction for its treaty is legitimate where genuine substance sits behind the choice. What the current law rejects is the treaty without the substance. Selection and substance are complementary, not alternatives, as the substance arc of the Tiger Global case makes clear.
Who bears the Indian tax in an indirect transfer?
The gain is the seller's, but India can pursue the buyer for failing to withhold against it, whichever treaty governs. Allocate the exposure in the purchase agreement through warranties, indemnities and a withholding mechanism. The companion case study on Vodafone and Cairn sets out that allocation.
Sources and authorities
- Sanofi Pasteur Holding SA v Department of Revenue and others — Andhra Pradesh High Court, 15 February 2013: gain on the indirect transfer taxable only in France under the India–France DTAA; retrospective amendment held not to affect treaty interpretation.
- India–France DTAA (capital-gains allocation to the state of residence); OECD Model Tax Convention, Article 13 (comparative).
- Finance Act 2012 — indirect-transfer amendment, section 9(1)(i), Explanation 5; Taxation Laws (Amendment) Act 2021 — repeal of retrospective effect and settlement of affected matters.
- Companion analyses: the indirect-transfer case study (Vodafone, Cairn); the substance arc (Azadi Bachao, Tiger Global); the jurisdiction-choice piece; the structuring pillar; the series hub.
This article is general information and not legal or tax advice. Laws and case-law develop; obtain advice on your specific circumstances before acting.