Bombay High Court’s decision could make India more attractive to foreign companies
Royal Dutch Shell (ticker: RDS) has won its court case in India over a $2.5 billion lawsuit. The Indian tax authority tried to collect transfer pricing taxes on $160 million of equity infusions made by Shell into its India subsidiary in 2008 and 2009, reported Petro Global News. The tax agency accused Shell’s India branch of undervaluing shares it traded with its parent company in order to avoid taxes.
The value of assets, products and services traded between different units of the same company determines the size of transfer pricing taxes. In the Shell case, the investment came out to about 16 cents per share; a price that Indian authorities alleged was under market price. Tax officials revalued the shares to about $2.95 per share and claimed Shell incorrectly calculated how much it owed for the share transfers.
The Bombay High Court agreed with Shell’s India lawyer Mukesh Butani, who said the tax department “clearly exceeded its jurisdiction,” referring to the country’s share transfer provisions, which exempts stock transfers from taxation entirely, reports BBC.
The ruling is good news for Shell, who had been waiting for the court’s final decision before deciding whether to make further investments in India, reports the Financial Times, but it has much larger implications for international business as a whole in India.
“Many multinationals in India often complain that tax authorities seem out to get them with rulings that are – at best – unpredictable,” Simon Atkinson, editor of India Business Report, told BBC. With many multinationals being concerned with the uncertain tax climate in the country, India has had trouble attracting international investors.
As a series of other high-profile tax claim cases continue in India, including ones involving IBM (ticker: IBM) and AT&T (ticker: T), the outcome of the Shell case looks like a positive indicator that the new government in India wants to attract more business. “This is a positive outcome which should provide a further boost to the Indian government’s initiatives to improve the country’s investment climate,” said Shell’s India unit in a statement on Wednesday.
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