(UPDATED 1/29/2014) The Indian government will not appeal the Bombay High Court’s decision in Vodafone, accepting the Court’s conclusion that transfer pricing laws can not be used to tax an Indian subsidiary’s issuance of shares at a premium to its overseas parent.
The decision was announced by Telecom minister Ravi Shankar Prasad during a January 28 press conference following a Union Cabinet meeting.
Prasad noted that the Bombay High Court based its October 10 decision in Vodafone on a finding that Chapter X of the income tax laws, dealing with transfer pricing, had no charging provision giving the government the right to levy tax.
“After legally examining [Vodafone, the Cabinet concluded] that the High Court opinion is right, there is no charging section, and this fruitless litigation is avoidable and also in the past. Therefore, a conscious decision has been taken not to file an appeal in the Supreme Court,” Prasad said.
“The government, led by the Prime Minister Narendra Modi, wants to convey a clear message to investors world over that this is a government where the decisions will be fair, transparent, and within the four corners of the law,” Prasad said.
The government’s decision will impact several other disputes pending in the Indian courts where the tax department has alleged that issuance or transfer of undervalued shares to a related party gives rise to a transfer pricing adjustment.
India’s tax authority lost a case brought by an Indian subsidiary of Royal Dutch Shell on similar grounds on November 18. A government appeal is now very unlikely.
Former Finance Minister Palaniappan Chidambaram, in April 2013, said Vodafone was one of 27 Indian subsidiaries that received tax assessments because of the transfer or issuance of undervalued shares to related companies. Included were local units of Essar, HSBC Securities, Standard Chartered Securities, Havells, Patel Engineering, and Bharti Airtel.
Related MNE Tax articles:
UPDATE (1/29/2015): India to apply principles in Vodafone transfer pricing ruling to all cases: The Indian government on January 29 explicitly instructed tax officials to apply the rational behind the Bombay High Court’s decision in Vodafone to all tax cases. Tax officials must follow . . .
Be the first to comment