Can India Tax Offshore Transfers Under the India-Ireland DTAA? FireEye Case Explained

On 30 September 2026, the Delhi Bench of the Income Tax Appellate Tribunal (ITAT) ruled in favour of FireEye Ireland Limited in a capital gains tax dispute involving the offshore transfer of a US entity that indirectly held an Indian subsidiary. The tribunal set aside a capital gains addition of approximately INR 4.97 billion and held that the gain was not taxable in India under the India-Ireland Double Taxation Avoidance Agreement (DTAA).

This decision is relevant for multinational groups undertaking cross-border restructurings, offshore share transfers, acquisitions, and disposals involving Indian subsidiaries. Its commercial importance lies in the tribunal’s distinction between India’s domestic indirect-transfer rules and the taxing rights actually allocated under an applicable tax treaty.

What does the FireEye Ireland Ltd. ruling mean for multinational businesses?

The ITAT ruling does not establish that offshore transfers involving Indian subsidiaries are automatically outside India’s capital gains tax regime. Instead, it demonstrates that the Indian tax treatment of an offshore transaction cannot be determined solely by looking at the Indian subsidiary in the ownership chain.

Foreign business entities should consider five key points:

1. The entity actually being transferred matters. The tax analysis may differ depending on whether the transaction transfers shares in an Indian company or an interest in a foreign holding company.
2. Domestic law and treaty provisions must be assessed separately. India’s indirect-transfer provisions may apply under domestic law. However, the relevant DTAA must independently provide India with a taxing right.
3. Specific treaty wording can determine the outcome. Capital gains provisions, indirect-transfer rules, look-through provisions, and residual taxing provisions vary across treaties.
4. Commercial substance can become important in treaty-abuse disputes: Businesses should be able to demonstrate the operational and commercial rationale for their foreign holding structures and reorganisations.
5. Offshore restructurings require India tax analysis even without a direct transfer of Indian shares. An Indian subsidiary within a foreign ownership chain can still create tax and compliance considerations.

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What was the FireEye Ireland Ltd. transaction?

Under a 23 July 2021 Share Purchase Agreement, FireEye Ireland Limited, an Irish tax resident, transferred its interests in 17 entities to another Irish group company, Mandiant Ireland Limited (MIL). One of the transferred entities was FireEye International LLC (FE LLC), a US entity that held Mandiant Cybersecurity Private Limited (MCPL) in India.

The ownership structure was:

FireEye Ireland Limited → FireEye International LLC (US) → Mandiant Cybersecurity Private Limited (India)

Although the transaction occurred between two Irish group companies, the transferred US entity indirectly held an Indian company. This raised the question of whether India could tax the resulting capital gain.

Why did the Indian tax authorities seek to tax the gain?

FireEye Ireland Ltd. reported the capital gain in its Indian tax return but claimed that the gain was not taxable in India under Article 13(6) of the India-Ireland DTAA.

Tax authorities treated approximately INR 4.98 billion as taxable capital gains. They relied on India’s indirect-transfer provisions, including Explanation 5 to Section 9 of the Income Tax Act 1961 and Article 13(5) of the India-Ireland DTAA. Its position was that the offshore transfer of FE LLC could result in an indirect transfer of the Indian company.

For multinational businesses, this distinction is important. This could mean an offshore restructuring can have Indian tax consequences even where the transaction documents do not involve a direct transfer of shares in an Indian company.

What was the key issue before the ITAT?

The central issue was whether India’s domestic indirect-transfer rules could be used to establish a taxing right under the India-Ireland DTAA.

India’s revenue department sought to apply the broader domestic-law meaning of “transfer” under Section 2(47) to the treaty term “alienation”. The ITAT rejected this approach, holding that treaty provisions must be interpreted within the context and purpose of the DTAA and that domestic definitions cannot simply be imported to expand the treaty’s scope.

This distinction has a direct commercial consequence; a transaction may fall within India’s domestic tax framework without necessarily giving India the same taxing right under an applicable treaty.

Why did Article 13(5) of the India-Ireland DTAA not apply?

Article 13(5) of the India-Ireland DTAA concerns the alienation of shares in a company resident in the relevant contracting state. In this case, the interest directly transferred was in FE LLC, a US entity, rather than an Indian company.

The ITAT therefore held that Article 13(5) did not apply. It was noted that the FE LLC indirectly held an Indian subsidiary that did not convert the transaction into a direct transfer of MCPL shares for treaty purposes.

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How did Article 13(6) determine the tax outcome?

Because Article 13(5) did not apply, the ITAT considered Article 13(6), the residual capital-gains provision. It provides that gains from assets not covered by the preceding provisions are taxable only in the contracting state in which the alienator is resident.

As FireEye Ireland was an Irish tax resident, the tribunal concluded that the gain fell under Article 13(6) and was not taxable in India under the DTAA.

Can India’s indirect-transfer rules override the DTAA?

The ITAT held that Explanation 5 to Section 9 of the Income Tax Act 1961, although applicable under India’s domestic tax law, could not automatically be incorporated into the DTAA to create a broader taxing right.

Therefore, it involves two separate questions:

1. Does India’s domestic law treat the offshore transaction as an indirect transfer?
2. Does the applicable DTAA give India the right to tax the resulting gain?

In FireEye Ireland Ltd., the tribunal concluded that the India-Ireland DTAA did not allocate that taxing right to India.

Why did the ITAT reject a broad look-through approach?

The ITAT declined to treat the transfer of FE LLC as a direct transfer of MCPL shares simply because FE LLC held the Indian company. Where a treaty does not specifically provide for such look-through treatment, the tribunal held that domestic-law deeming provisions cannot be used to create one.

This ruling makes the ownership chain and legal identity of the transferred entity important considerations in transaction planning.

Why does commercial substance matter?

Indian tax authorities argued that the treaty should not be interpreted to produce double non-taxation and relied on Article 6 of the Multilateral Instrument (MLI) concerning treaty abuse.

The ITAT found insufficient evidence to establish treaty abuse. It also considered FireEye Ireland Ltd.’s commercial substance:

1. The company had been established in 2013
2. It maintained substantial operations
3. Employed more than 150 people, while the restructuring covered 17 entities.

The appellate tribunal considered these circumstances consistent with a broader group restructuring rather than a transaction undertaken solely to avoid Indian tax.

Business implication

Foreign holding and operating structures should be supported by contemporaneous evidence of their commercial rationale and substance.

For an India-linked restructuring, foreign firms should maintain records covering the following:

1. Corporate and tax residence
2. Ownership structures
3. Employees and personnel
4. Business activities and operations
5. Management arrangements
6. Transaction rationale
7. Restructuring objectives
8. Wider group transaction

Such documentation can become important if tax authorities question the purpose of the structure or invoke treaty anti-abuse provisions.