MUMBAI: The Indian government has asked tax officials to apply the principle behind a tax ruling in favour of Vodafone Group to all similar cases, a major boost to foreign firms including Royal Dutch Shell and others. The order was detailed in a letter sent by the Finance Ministry to all tax officials across the country.
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 overzealous in its pursuit of foreign companies with billions of dollars of demands.
Prime Minister Narendra Modi’s government, which stormed to power in May on promises it would reboot a slowing economy, has sought to change that. Tax lawyers said they expected the government order to impact all the past and future cases involving tax on shares issued by a company to related entities, the heart of the Vodafone case.
The order came a day after the government said it would not appeal a Bombay High Court ruling in favour of Vodafone in a long-running dispute under which the taxmen had accused a unit of the British telecom firm of under-pricing shares in a rights issue.
“In view of the acceptance of the above judgement, it is directed that the ratio decided of the judgement must be adhered to by the field officers in all cases here this issue is involved,” said the letter from the finance ministry, using a Latin phrase denoting the rationale behind the ruling.
The decision will also bring relief to Shell, which won a favorable ruling in the Bombay High Court in November after it challenged the largest ever claim in an Indian tax case related to transfer pricing. Transfer pricing is the value at which firms trade products, services or assets between units across borders, a regular part of doing business for a multinational.
