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Shell India Denies Transfer Pricing Abuse

by Mary Swire,, Hong Kong

06 February 2013

Royal Dutch Shell PLC's Indian unit has confirmed it is in discussions with India's tax authorities over accusations of tax evasion relating to the alleged under pricing of share transfers, claims the firm says are "baseless."

"Shell globally and in India complies with all applicable local regulations and laws and has also done so in this instance - in full compliance with the Shell Group Business Principles," stated India's Chairman of Shell Group of Companies Dr Yasmine Hilton.

Royal Dutch Shell made the statement in response to reports claiming that Indian income-tax authorities have charged Shell India with under pricing a share transfer by a total value of USD2.8bn, which allowed the business to underpay taxes.

The transfer of 870m shares was made from Shell India to Shell Gas BV back in March 2009. Each share was issued for INR10 (USD0.19) but the tax authorities valued them at INR180 per share (USD3.40).

In response to the reports, the energy and petrochemical giant stated that the allegations are erroneous and are based on an "incorrect interpretation of the Indian tax regulations."

"Taxing the money received by Shell India is in effect a tax on Foreign Direct Investment (FDI), which is contrary not only to law but also to the spirit of the recent global trip by the Finance Minister to attract further FDI into India," it added.

This latest dispute will do little to allay concerns held by corporate investors over doing business in India. These fears were initially sparked by a USD2.2bn tax dispute between the Indian tax authorities and Vodafone Group Plc.

After several years of contention, since its purchase of Hutchinson Essar's Indian business in 2007, Vodafone was finally told last month that it was not liable for the back-dated taxes. However, the subsequent announcement in the 2012 Budget giving the government the power to challenge tax arrangements retrospectively has raised further uncertainties and the company has been engaged in talks with the Finance Ministry over the issue.

As for the Shell India case, the business says it plans to challenge the transfer pricing order and will be "evaluating all options for redress."

TAGS: compliance | tax | tax compliance | India | tax avoidance | law | oil and gas | group taxation | ministry of finance | tax authority | multinationals | tax planning | transfer pricing | telecoms

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