Transfer
pricing laws of India are frequently invoked by Indian income tax
department these days. The main reason for the same is to enrich
government exchequers with additional revenues.
One such transfer pricing order has been received by
Shell India that alleges that Shell under priced its shares to the
extent of Rs 15,000 crore while issuing shares to it’s sole parent
Shell Gas BV in March, 2009.
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 Perry4Law’s
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.
