The Bombay High Court ruled in favor of the Indian unit of Royal Dutch Shell Plc, Europe’s largest oil producer, in a $1.4 billion tax dispute. The court set aside an order by the country’s tax department that sought to tax monies paid to transfer shares of the oil producer from its India unit to the parent company.
Transfer-pricing taxes are imposed on the rate at which companies trade products, services and assets with overseas units or domestic subsidiaries.
About $160 million of equity infusions was made by the Hauge, Netherlands-based company in its India unit. Shell India Markets Private Ltd., made the investment in 2009 at 10 rupees (16 cents) a share, which the tax authorities claimed were underpriced and revalued them at 183 rupees ($3.00) a share attracting the claim and interest. Shell said it valued the deal correctly.
The high court decision is a “positive outcome” which should provide a boost to the Indian government’s initiatives to improve the country’s investment climate, Shell said in an e-mailed statement.
The verdict, along with one last month favoring Vodafone Group Plc in a similar dispute, in which authorities had wanted 36 billion rupees ($583 million), set a precedent for other transfer-pricing cases with overseas companies including Nokia Corp., IBM Corp., and Sanofi Holding SA. The Bombay High Court said in the Vodafone verdict that the issuance of shares cannot be considered income.
