Despite the hue and cry it created the Indian Income-tax authorities as well as s several tax professionals specilising

in international taxation believe that the Tranfer Pricing order on Shell India, alleging that Rs 15,000 cr escaped taxnet. Section 92 and the amendmenst in this section vest power on the tax authorities make such a demand. It says it

The primary objective of countries putting in place Transfer Pricing Rules is to check possible erosion of revenue with the increasing number of cross-border transaction happening between associate enterprises. Transfer Pricing Rules were introduced in India in 2001, much after several countries had successfully experimented with it and systemised the comparatively novel fiscal tool. With the increasing global trade between associate enterprises, which at present is over 60 % of the total trade happenign worldover, more and more countries are exploring the feasibility of Transfer Pricing legislation in their own backyard. Taxmen usually ruffle feathers, espeially when they try to be innovative. They were taught to collect not a penny more not a penny less. It is a thin line taxmen tread, T P Rules incorproated in 2001 budget had not been a concern for tax professionals and companies except the volumninous documents T P regime expect the companies to furnish. But that was until two years ago when companies raised their voices, against taxing income that has not been received, . Or taxing a transactiosn that had not happened. Levying tax on intangibles, such as expenses for enhancing the brand equity, by introducing the concept of deemed receipts etc. Taxmen go through the legality of every measure oin an exercise to firtify themselves against the fallout of each meausre.Corproates cried foul. But a recent Special Bench order in the case of L G Electronics ratified the line of the taxmen. In the L G Electronics case. a Special Bench of Income-tax Appellate held taxing inta ngibles is in tune with the existing laws.

Then the tax demand on Shell India, of about Rs 15,000 cr founded on a share transaction with its own subsidiaries.There are several firsts in this demnd, besides the huge size of the amount. This is the first time i India share transactions are brought under the transfer pricing net. Tranfer pricing , according to critics, is an exercise in valuation of godds and services and share tramnsactions do not fall within its ambit. Secondly, the FDI issue. Shell has reportedly alleged that taxing money from foreigm direct investment is in fact a tax o FDI Shell India believes T P orde was based on injcorrect interpreatation of Transfer Pricing Rules.

Shell India has alleged that the order was based on incorrect interpretation of Indian transfer pricing laws. In fact, Shell believes that taxing the money received by Shell India is, in effect, a tax on foreign direct investment. Shell believes that this is not only in violation of Indian law but also giving a bad signal to the international FDI community. Considering the tax evasion reports as baseless, Shell India is now planning to challenge the order of income tax authorities strongly and is evaluating all options for redress. The company is confident of its stand as the valuation of the shares was undertaken by a certified independent valuer who assessed the value to be below Rs 10 per share and the issue was made at Rs 10 per share. Shell claims that such valuation is in accordance with the foreign investment and exchange control laws. The valuation certificates were also filed with the regulatory authorities. At Perry4Law and Perry4Laws Techno Legal Base (PTLB) we believe that the transfer pricing laws and valuation of the unlisted company needs further clarification from our legislature. Otherwise, litigations would keep on surfacing unnecessary. In a listed company, the valuation is based on Securities and Exchange Board of India (SEBI) formula, which is the average of six-month or two-week share price, whichever is higher. But in unlisted companies, the valuation can be based on fair market price, or book value, or returns on share based on a certification by an independent valuer. Source: Corporate Laws In India. This entry was posted in Uncategorized. Bookmark the permalink. ? Transfer Pricing Laws In India, International Transaction And Arms Length PriceNokia Accused Of Violating Income Tax And Transfer Pricing Laws Of India ? One Response to Shell India Received Transfer Pricing Order From Indian Tax Authorities

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