IT can probe Shell deal for transfer pricing violations: Experts - Economic Times

MUMBAI: The share transaction between Shell India and its global parent can be scrutinised by the Income-Tax department for violation of transfer-pricing (TP) rules, tax experts say. Indian quasi-judicial tax authorities have also ruled in recent orders that the country's transfer-pricing rules apply to share transfers between foreign parents and affiliates of Indian companies and to buybacks, thereby strengthening the I-T department's case against Shell. In separate rulings last year, the Authority for Advance Ruling ( AAR) has said transfer-pricing rules apply to share transactions between foreign companies even when income is not chargeable under the I-T Act, 1961. Earlier this month, the I-T authorities served a transfer-pricing order on Shell India, saying the company undervalued its shares when raising money from its global parent Shell Gas BV a few years ago. Shell sold 8.7 crore shares to its parent. The I-T authorities say Shell undervalued the shares deal by Rs 15,220 crore. The price should have been Rs 187 per share and not Rs 10 per share, they added. The order triggered a furious storm of protest with Shell saying this is a tax on FDI and termed the tax demand as absurd. "We do need the right signal that India is going to be a stable fiscal, legal, tax regime. We are not going to have surprises along the way," said Yasmine Hilton, the India head of Royal Dutch Shell, told reporters on February 12. Income-tax officials say the reality is very different. "Only two conditions are to be met if a transaction has to be brought under the TP net. The transaction should be international and between associate parties," says SC Tiwari, former member of the Income-Tax Appellate Tribunal, (ITAT), and a tax lawyer who believes that the department is right in sending the notice to Shell. Section 92B of the Act gives wide ranging powers to the Income-Tax department to scrutinise any kind of international transaction be tween two associated enterprises. The term "international transaction" is defined as one between two associated enterprises covering the purchase, sale, lease of intangible and tangible property. It includes provision of services, lending and borrowing of money, and importantly from the income tax's point of view, includes any transaction having an impact on the "profits, loss, income and assets of such enterprises". The tax department could also argue that Shell India and Shell Gas BV are associate enterprises within the meaning of Section 92A of the Income-Tax Act. The explanations provided under Section 92B cover "capital financing, including any type of long-term or shortterm borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business." All these transactions will come under transfer pricing. "Why did they (Shell) sell it a t Rs 10 per share? Why not at Rs 30 or 40," an I-T official asked. In separate rulings last year, the Authority for Advance Ruling (AAR) has said transfer-pricing rules apply to transfer of shares of an Indian company between two foreign parents though capital gains tax would not apply because of the Indo-Mauritius Tax Treaty. While Shell has its strong backers, the I-T authorities believe that they are acting within the bounds of provisions of law. via Business - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNHmj8hOz2LL5Jv28q6o3t7c6iiCsw&url=http://economictimes.indiatimes.com/news/news-by-industry/energy/oil-gas/i-t-can-probe-shell-deal-for-transfer-pricing-violations-experts/articleshow/18670311.cms

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