* Says tax claim based on "incorrect interpretation" of
* Tax official says "difference of opinion" on share
* Case comes as India steps up enforcement of tax collection
By Prashant Mehra and Sumeet Chatterjee
MUMBAI, Feb 4 Anglo-Dutch oil major Royal Dutch
Shell's Indian unit will challenge a claim by the local
tax authorities that a share sale to its overseas parent in 2009
was undervalued by $2.7 billion, the latest tax conflict
involving a foreign company in India.
Shell India said on Monday that as part of its investment in
the country Shell India Markets Pvt Ltd issued 87 million shares
to parent Shell Gas BV at 10 rupees apiece in 2009.
Tax authorities have valued those at 183 rupees a share,
proposing an adjustment in the value of the deal of 152 billion
rupees ($2.7 billion), Shell said.
India has stepped up enforcement of tax collections as it
looks to raise revenue to help plug its fiscal deficit.
But the Shell case comes at a time when India is still
trying to settle a long-running $2 billion tax dispute with
British mobile phone firm Vodafone that has dented
foreign investors' confidence in the country.
Vodafone, the largest corporate investor in India, has
repeatedly clashed with Indian authorities over taxes since it
bought Hutchison Whampoa's local mobile business in
2007. While India's Supreme Court backed Vodafone's position
that it does not owe tax on the acquisition, a subsequent law
change enabled India to impose such taxes on mergers
Shell said on Monday the transfer pricing order by the tax
authorities was based on an "incorrect interpretation" of tax
rules and was "bad in law" as the amount is a capital receipt on
which income tax cannot be levied.
"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," Shell India Chairman Yasmine Hilton said.
Finance Minister P. Chidambaram last month met with
investors in Hong Kong, Singapore, Frankfurt and London in a
push to attract investment to India as he looks to shore up the
country's finances and stave off a credit rating downgrade.
An official in the Indian tax office with direct knowledge
of the matter said the Shell case was a result of a "difference
of opinion" on the valution of shares and that Shell had a right
to contest it before a dispute resolution panel of the
If the difference in the share valuation is established then
the company can be asked to pay taxes on the interest earned on
$2.7 billion, said the official, who did not want to be named as
he was not authorised to speak to the media.
He did not specify what the tax liability would be.
"There doesn't appear to be a mala fide intention here, but
difference of opinion," he said.
News of the tax dispute with Shell came ahead of a visit to
India later this month by British Prime Minister David Cameron.
An Indian foreign office spokesman confirmed the trip on Monday.
India expects to raise $70 billion from corporate tax and
$37 billion from individual tax payers in the current fiscal
year that ends in March, according to finance ministry
estimates. Net corporate tax collections for the first nine
months were up 10.6 percent, compared with a 15 percent target.