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Shell Wins Indian Transfer Pricing Dispute

by Mary Swire,, Hong Kong

20 November 2014

Royal Dutch Shell PLC's Indian unit has won a major transfer pricing dispute, after the Bombay High Court, on November 18, rejected the Indian tax authority's tax demand worth INR180bn (USD2.9bn).

The dispute centered on the transfer of shares from Shell's Indian subsidiary, Shell India Markets Private Limited, to an overseas unit, Shell Gas BV. Each share was valued at INR10 (USD0.19), but the tax authorities revalued them at INR180 per share (USD3.40), arguing that the shares were not issued at arm's length. Due to a transfer pricing adjustment, INR150bn and INR30bn were added to Shell India's taxable income for the fiscal years 2007-08 and 2008-09, respectively.

The tax authority claimed that an adjustment should be made to establish an arm's length price for the transaction, arguing that the transaction should be treated as interest income.

However, the Court ruled the transaction did not give rise to income taxable under India's Income Tax Law and therefore the transaction could not be subject to India's transfer pricing rules.

Welcoming the ruling, a Shell spokesman said: "We welcome the high court decision. Shell has always maintained that equity infusion by a foreign parent company into an Indian subsidiary cannot be taxed as income," a spokesman for Shell in India said. "This is a positive outcome, which should provide a further boost to the Indian government's initiatives to improve the country's investment climate."

The ruling, which came a month after a similar dispute concerning Vodafone PLC, is expected to support the arguments of over 20 companies engaged in similar tax disputes with India.

In Vodafone India Services Pvt. Ltd. vs Union of India, Vodafone also argued that its transfer of shares from its Indian subsidiary to an overseas parent was a capital account transaction with no impact on its income, but India nevertheless sought to charge tax on the capital receipts.

TAGS: court | compliance | tax | investment | business | tax compliance | India | tax avoidance | interest | law | oil and gas | enforcement | tax authority | offshore | agreements | multinationals | legislation | tax planning | transfer pricing | tax reform | trade | Tax

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