Shell India has termed the recent order by the Income Tax Department claiming tax liabilities involving transfer of share as an inaccurate demand. The company has said it will challenge this order and is in the process of evaluating all options for redress since it sullies Shell’s good name.
In a statement issued here, Shell said the allegations of tax evasion were baseless. 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, said Yasmine Hilton, Chairman, Shell Group of Companies in India.
Shell India’s view is that the transfer pricing order is based on an incorrect interpretation of Indian tax regulations and is bad in law as this is a capital receipt on which income-tax cannot be levied, the statement said.
Funding of a subsidiary through issue of shares is common in India and globally, the company said. “Taxing the money received by Shell India is in effect a tax on foreign direct investment, 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,” added Hilton.
The Royal Dutch Shell group has over the last few years made significant investments in India. Equity injection was used to finance these investments and to fund the ordinary business activities of Shell India.
Shell Gas BV was the only parent of Shell India before this equity issue and continued to be so after the issue. The statement said a Rs 15,220-crore ($ 2.7 billion) adjustment has been proposed in the transfer pricing order of financial year 2008-09 of Shell India Markets Pvt Ltd (Shell India), a wholly-owned subsidiary of the Royal Dutch Shell Group of Companies. This adjustment is on account of an issue of equity shares by Shell India to its sole parent Shell Gas BV in March 2009.
Against a fresh equity injection of Rs 87 crore ($160 million) shares aggregating to 8.7 crore were issued at a value of Rs 10 a share. The share issuances were in accordance with the terms of the foreign investment policy, the prevailing exchange control regulation and the applicable corporate and related laws, the company argued.
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. The valuation certificates were filed with the regulatory authorities.
The transfer pricing order has valued these at Rs 183 per share even though there are no provisions under the income-tax law for such revaluation, Shell said.