After providing relief to Vodafone Group in its Rs. 3,200-crore tax dispute, the government is all set to provide similar relaxation to Anglo-Dutch multinational — Shell Plc.
Speaking to HT, a senior finance ministry official said that the government has decided not to appeal in the Supreme Court against the Bombay High Court’s ruling favouring Shell in its Rs. 18,000-crore tax dispute.
The official further confirmed that the finance ministry authorities, who have been mulling on not initiating an appeal in the apex court for quite some time, have now decided to follow a similar method in dealing with such issues, which would be a major relief for firms such as Shell.
“The Central Board of Direct Taxes has advised the government to follow a Vodafone-like approach while dealing with Shell’s transfer pricing case,” he said.
“In view of the acceptance of the (Vodafone) judgement, it is directed that the ratio decidendi (or the reasoning) of the judgement must be adhered to by the field officers in all cases where this issue is involved,” the official said citing a communication from CBDT.
It was in November last year when the Bombay High Court had questioned the government on the rationale behind the Rs. 18,000-crore transfer pricing order imposed on Shell. The income tax department had raised a tax demand on Shell India Markets Pvt Ltd on two transfer pricing adjustments of Rs. 15,000 crore and Rs. 3,000 crore for 2007-08 and 2008-09 respectively, after the Indian subsidiary issued shares to an overseas group entity, Shell Gas BV. The department had contended that the price at which the shares were issued, were grossly undervalued.
Transfer pricing is an accounting method of valuing transactions between group companies that seeks to discover the best price to be levied on sale or purchase of goods or services between parent and subsidiary companies.
Several multinationals, including HSBC, AT&T, IBM Corp, Nokia Oyj and local firm like Essar too have been contesting transfer pricing cases.