Shell India to challenge tax evasion order

Shell India on Monday said it will challenge a notice by authorities alleging tax evasion by under-pricing share transfer between member companies on the ground that the order was based on incorrect interpretation of regulations.

Income tax department has charged Shell India of under- pricing a share transfer within the group by Rs 15,220 crore, and thereby evading taxes.

The order relates to the issue of 8.7 crore shares by Shell India to an overseas company Shell Gas BV in March 2009. The shares were issued at Rs 10 a share, which the income-tax authorities contest and peg higher at Rs 183 a share instead. “Tax evasion (reports) are baseless and Shell India will challenge this order strongly and is evaluating all options for redress,” Anglo-Dutch oil company Royal Dutch Shell Plc’s India unit head Yasmine Hilton said in a statement.

“Shell globally and in India complies with all applicable local regulations and laws and has also done so in this instance, in full compliance with the Shell group business principles,” she added.

Shell vowed to challenge what it saw as a transfer pricing order that was “based on an incorrect interpretation of the Indian tax regulations and is bad in law,” arguing that it was a capital receipt on which income tax cannot be levied.

“Funding of a subsidiary through issue of shares is common in India and globally,” Shell India said.

“Taxing the money received by Shell India is in effect a tax on Foreign Direct Investment (FDI), which is contrary not only to law but also to the spirit of the recent global trip by the Finance Minister to attract further FDI into India,” Hilton said.

Shell Gas BV was the only parent of Shell India before this equity issue and continued to be so after the issue.

The company said the share issuances were in accordance with the terms of the foreign investment policy, the prevailing exchange control regulation and related laws.

“The valuation of the shares was undertaken by a certified independent valuer who assessed the value (in line with the foreign investment and exchange control laws) to be below Rs 10 per share and the issue was made at  Rs 10 per share,” it said.

“A Rs 15,220 crore ($ 2.7 billion) adjustment has been proposed in the transfer pricing order of FY 08-09 of Shell India Markets Pvt Ltd (Shell India), a wholly owned subsidiary of Royal Dutch Shell group. It is on account of issue of equity shares by Shell India to sole parent Shell Gas BV, in March 2009,” the statement said.

Against a fresh equity injection of Rs 87 crore, shares aggregating to 8.7 crore, were issued at a value of Rs 10 per share.

“The share issuances were in accordance with the terms of the foreign investment policy, the prevailing exchange control regulation, the applicable corporate and related laws,” it said.

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