After Voda, dept takes on Shell; contests allotment of 87 cr shares at . 10 apiece, says it amounted to an undervaluation of . 15,000 crore
The income-tax department and Shell India, a subsidiary of global energy giant Shell, have locked horns over the pricing of shares issued by the Indian company to its overseas group company with the tax authorities alleging an under-pricing of . 15,000 crore, three persons familiar with the development told ET NOW.
The scope of the order is similar to the IT department’s demand of . 11,218 crore from India’s second-largest mobile telephony company by subscribers, Vodafone India, over an overseas share sale by Hutchison Whampoa’s India business to Vodafone.
The IT order relates to the issue of 87 crore shares by Shell India to an overseas group company, Shell Gas BV, in March 2009. The shares were issued at . 10 apiece, which has been contested by the income-tax authorities in Mumbai. The income-tax department has challenged the valuation methodology of Shell India and has pegged the value of the shares at . 180 a share.
The company told tax authorities that its shares were valued around . 7 only and the allotment of shares to the overseas group entity at . 10 each was at the market rate. The officials challenged the manner in which the valuation was done using discounted free cash flow method. “The tax officials have alleged that the company has taken an erratic EBITDA, or operating profit, growth projections to arrive at a depressed value of its shares,” a person in the know said.
“Transfer pricing is a special antiavoidance rule and is intended to be a deterrent for non-arms length pricing between related parties,” said Ketan Dalal, joint tax leader at consultant PWC India. “In the context of issue of shares and the consequently alleged under-pricing, one would tend to think that this is a real stretch of transfer pricing provisions.” “Shell India tax experts have indeed been in discussions with the Indian tax authorities on this issue over the past week and do not agree with their views,’’ a Shell India spokesperson said. ‘’The tax officer has now made an assessment and passed an order which we have not yet received. We will review the order and initiate consequent appropriate actions.”
Sources said Shell India’s potential tax liability in this case will become clear once the concerned assessing officer of the income-tax department finalises his order by March 31. Meanwhile, the company can exercise the option of challenging the transfer-pricing order by filing a writ petition in the high court.
Transfer price is the actual price at which a transaction takes place between two related parties, usually belonging to the same group.
MNC and transnational firms use transfer pricing to allocate revenue between different divisions. India has a high incidence of disputes relating to transfer pricing as it is difficult to arrive at a price agreeable to the I-T department and the companies involved.
ASHWIN MOHAN
ET NOW
ashwin.mohan@timesgroup.com
http://epaper.timesofindia.com/Default/Scripting/ArticleWin.asp?From=Archive&Source=Page&Skin=ETNEW&BaseHref=ETM/2013/02/01&PageLabel=10&EntityId=Ar01000&ViewMode=HTML
The income-tax department and Shell India, a subsidiary of global energy giant Shell, have locked horns over the pricing of shares issued by the Indian company to its overseas group company with the tax authorities alleging an under-pricing of . 15,000 crore, three persons familiar with the development told ET NOW.
The scope of the order is similar to the IT department’s demand of . 11,218 crore from India’s second-largest mobile telephony company by subscribers, Vodafone India, over an overseas share sale by Hutchison Whampoa’s India business to Vodafone.
The IT order relates to the issue of 87 crore shares by Shell India to an overseas group company, Shell Gas BV, in March 2009. The shares were issued at . 10 apiece, which has been contested by the income-tax authorities in Mumbai. The income-tax department has challenged the valuation methodology of Shell India and has pegged the value of the shares at . 180 a share.
The company told tax authorities that its shares were valued around . 7 only and the allotment of shares to the overseas group entity at . 10 each was at the market rate. The officials challenged the manner in which the valuation was done using discounted free cash flow method. “The tax officials have alleged that the company has taken an erratic EBITDA, or operating profit, growth projections to arrive at a depressed value of its shares,” a person in the know said.
“Transfer pricing is a special antiavoidance rule and is intended to be a deterrent for non-arms length pricing between related parties,” said Ketan Dalal, joint tax leader at consultant PWC India. “In the context of issue of shares and the consequently alleged under-pricing, one would tend to think that this is a real stretch of transfer pricing provisions.” “Shell India tax experts have indeed been in discussions with the Indian tax authorities on this issue over the past week and do not agree with their views,’’ a Shell India spokesperson said. ‘’The tax officer has now made an assessment and passed an order which we have not yet received. We will review the order and initiate consequent appropriate actions.”
Sources said Shell India’s potential tax liability in this case will become clear once the concerned assessing officer of the income-tax department finalises his order by March 31. Meanwhile, the company can exercise the option of challenging the transfer-pricing order by filing a writ petition in the high court.
Transfer price is the actual price at which a transaction takes place between two related parties, usually belonging to the same group.
MNC and transnational firms use transfer pricing to allocate revenue between different divisions. India has a high incidence of disputes relating to transfer pricing as it is difficult to arrive at a price agreeable to the I-T department and the companies involved.
ASHWIN MOHAN
ET NOW
ashwin.mohan@timesgroup.com
http://epaper.timesofindia.com/Default/Scripting/ArticleWin.asp?From=Archive&Source=Page&Skin=ETNEW&BaseHref=ETM/2013/02/01&PageLabel=10&EntityId=Ar01000&ViewMode=HTML
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