(This article is from theguardian.com)
The Anglo-Dutch oil firm Shell has won a multimillion-dollar court battle against the Indian authorities, marking a significant victory for multinationals involved in tax wrangles in the country.
The high court in Mumbai ruled in favour of Shell, whose Indian unit had been accused of under-pricing shares issued to its parent firm by about 180bn rupees (£1.9bn).
The company had challenged a demand by Indian authorities for tax on the interest that would have been earned.
The judges quashed the income tax department order.
“This is a positive outcome which should provide a further boost to the government initiatives to improve the investment climate,” Shell said in a statement.
The high tax claim was one in a series ordered by Indian authorities on foreign firms including HSBC, IBM and Nokia.
A court ruled in October in favour of the British mobile phone company Vodafone, which had been engaged in a £317m tax battle with Indian authorities after they accused it of also underpricing its shares.
Foreign companies claim India’s tax laws are sometimes applied in an uneven and capricious manner, making it difficult to do business in the country.
Vikram Dhawan, director of equities at Equentis Capital, described the ruling in the Shell case as “a very positive development”, which showed India “is walking the talk of being friendly and fair to businesses”.
But he added that its government now had to remove the ambiguity about inward capital rules “if more of such suits that hurt investor sentiment are to be avoided”.
Transfer pricing – the value at which companies trade assets between units in different countries – has become a significant legal issue in India and in other countries. Tax authorities often contend that companies set the prices for transferring assets for their own gain.
Legally, prices for cross-border transfer of assets are supposed to be set as if the transactions were carried out with separate companies.
Uncertainty about India’s regulatory climate has dampened foreign investment at a time when the country needs it to upgrade dilapidated infrastructure and spur economic growth.