Royal Dutch Shell has won a legal battle against Indian authorities over a high-profile tax case involving billions of dollars.
The Bombay High Court ruled in favor of Shell’s Indian unit. The unit was allegedly under-pricing shares transferred to its parent company by $2.5 billion in February 2013.
Indian authorities wanted tax on the interest the firm would have earned. However, the court concluded that the stock transfers were not taxable.
A Shell spokesman said:
“Shell has always maintained that equity infusion by a foreign parent company into an Indian subsidiary cannot be taxed as income,” Adding: “This is a positive outcome, which should provide a further boost to the Indian government’s initiatives to improve the country’s investment climate.”
The ruling in favor of Shell is considered to be a win for international companies operating in India.
India’s reputation as a destination for foreign investment has been affected by recent tax claims on big multinational firms, such as IBM, Nokia Oyi, HSBC and AT&T.
These court cases have done nothing but make India look less friendly for foreign firms to operate in, which is not what the country should aim for, particularly at a time when India needs as much overseas investment as it can.
Mukesh Bhutani, managing partner at BMR Legal Advisors, who represented Shell, said that the court ruling reveals that transfer-pricing laws don’t apply to the issuance of shares to a foreign parent, adding “this ruling now lays down the principle in no uncertain terms,” and that “it is certainly helpful to all the other such cases”.