Vodafone Decision Eases Tax Worries for Shell, Others

Published: 29th January 2015 03:30 PM  |   Last Updated: 29th January 2015 03:30 PM   |  A+A-

MUMBAI: India's decision to drop a tax dispute with Vodafone Group Plc is likely to mean relief for Royal Dutch Shell PLC and others caught in similar, protracted battles, as the government tries to attract much-needed foreign investment.

India's image as an investment destination has been tarnished by a reputation for red tape, unpredictable rules and a tax office long seen as over zealous in its pursuit of foreign firms. Prime Minister Narendra Modi's government, seeking to reboot a slowing economy, has sought to change that.

Late on Wednesday, India's government said it would not appeal a regional court ruling in favour of Vodafone, the biggest foreign investor in India.

"It's a departure from the past when all the high-value tax cases were always litigated," said Himanshu Shekar Sinha, a partner at law firm Trilegal.

"With this, the government has sent a clear direction that appeals should not be filed routinely."

Tax lawyers said they expected cases such as those involving IBM, Nokia Oyj, Microsoft Corp and others could now be resolved instead through negotiation.

The Bombay High Court ruled in favour of Shell in November, after it challenged the largest ever claim in an Indian tax case related to transfer pricing - the value at which companies trade products, services or assets between units across borders, a regular part of doing business for a multinational.

That case is expected to follow a similar pattern as for the Vodafone, according to a separate lawyer involved in the case.

"This government is serious about reducing litigation," Sinha said.

Vodafone has been involved in a string of tax disputes and in this latest iteration the tax office had accused it of under-pricing shares in a rights issue.

The Bombay High Court in October ruled in favour of Vodafone, and the attorney general recommended the government refrain from appealing that ruling.

On Wednesday the government heeded the recommendation, just days after Finance Minister Arun Jaitley reassured investors that India would review its past, "adversarial", tax policy.

Jaitley has introduced advance tax ruling mechanisms for domestic investors and changed transfer pricing rules last year to prevent new tax disputes. The government estimates tax demand of more than $65 billion is mired in dispute and litigation.

"Systematically, slowly but surely, we are reversing the whole policy," Jaitley said to a gathering in Davos, Switzerland last week.

A spokesman for Shell declined to comment.

Stay up to date on all the latest Business news with The New Indian Express App. Download now
(Get the news that matters from New Indian Express on WhatsApp. Click this link and hit 'Click to Subscribe'. Follow the instructions after that.)

Comments

Disclaimer : We respect your thoughts and views! But we need to be judicious while moderating your comments. All the comments will be moderated by the newindianexpress.com editorial. Abstain from posting comments that are obscene, defamatory or inflammatory, and do not indulge in personal attacks. Try to avoid outside hyperlinks inside the comment. Help us delete comments that do not follow these guidelines.

The views expressed in comments published on newindianexpress.com are those of the comment writers alone. They do not represent the views or opinions of newindianexpress.com or its staff, nor do they represent the views or opinions of The New Indian Express Group, or any entity of, or affiliated with, The New Indian Express Group. newindianexpress.com reserves the right to take any or all comments down at any time.

flipboard facebook twitter whatsapp