When we look at the top tax stories of 2013, it was nothing less than the clash of the titans. In 2013, tax authorities waged a war against many corporate giants including Vodafone.
Transfer pricing continued to be the sore point for the tax regulators and multinationals. 2013 Global Transfer Pricing Survey conducted by Ernst & Young revealed that there is an upsurge in tax disputes over transfer pricing all over the globe. India is not an exception either.
We have hand-picked the best news-making tax stories of the year. Take a look.
1). Nokia Charged with Transfer Pricing Violations
The world renowned telephone manufacturer Nokia faced a blow of INR 130 billion from the Indian I-T department. The authorities conducted a raid on Nokia’s Indian subsidiary in January and charged the company with transfer pricing violations amounting to INR 100 billion plus a deliberate tax evasion of INR 30 billion. Nokia fought back by making an appeal to Delhi high court and subsequently to Appellate Commissioner, but faced failure at both the places.
The company then approached Tax Appellate Tribunal and eventually agreed to pay USD 107 million in instalments. But the real turn in the story took place in September. Just before Nokia got all set to get acquired by Microsoft, the tax authorities issued a freezing order restraining them from doing so.
The company knocked the doors of Delhi high court yet again and this time the decision was turned in their favor. The freezing orders were taken off with a few strings attached. But the dispute is still unsettled.
2). Vodafone in a Never-Ending-War with Tax Authorities
It is perhaps the longest tax dispute in the Indian tax history. It was a series of disputes full of turns and tumbles. The story began when Vodafone was handed a tax notice of INR 11,000 crore over the 2007 acquisition of Hutchison Whampoa’s stake in Hutchison Essar. Much to their relief, the Supreme Court turned the decision in Vodafone’s favor in 2012, announcing that the company is not liable to pay taxes under the much debated 2007 acquisition case. But before they could breathe a sigh of relief, the government changed the rules and bounced back in 2013 with retrospective tax laws to add to their troubles. The 11,000 crore Vodafone tax dispute dragged through the year without any resolutions.
In yet another case in February, Vodafone got a tax notice of INR 13 billion over undervaluation of shares between Vodafone India & Vodafone Teleservices Mauritius in 2007-08. When Vodafone petitioned the case in Bombay high court, the court concluded that the authorities retain the right to make an investigation of the related transactions.
To add to their troubles, the authorities slapped a fresh tax notice of Rs. 3,000 crore, in another transfer pricing case from 2010-11. As of now, Bombay high court has decided to stay this tax demand on Vodafone India Services.
3). IBM Plans to Challenge Tax Authorities on Allegations
The I-T streak of serving tax notices to MNCs began much earlier but it was only in the year 2013 that many corporate players took up defensive judicial measures against it. While tax authority was busy tackling the criticism for retrospective amendments, from every nook and corner of the corporate world, IBM too joined the race in the beginning of the year.
The global giant was alleged to owe the Indian I-T department INR 53 billion in back taxes for fiscal 2009. IBM is expected to make an appeal with the appellate authorities and as per their spokesperson; the company is expected to come out clean.
4). Shell India Under I-T Radar
In the first quarter of the year, the company was served a whopping INR 15,220 crore tax notice. The notice was sent for the undervaluation of shares which Shell India transferred to Shell Gas BV, its overseas group entity in March 2009. Like others, Shell was firm in maintaining that throughout the globe, it has been compliant with the local laws and norms. As of now, the case is pending for hearing in Bombay high court.
5). Government Introduces Tax Reforms to Reduce Tax Disputes
By the end of the year, government took a stand and introduced much needed tax reforms In order to bring some solace to the multinationals. The reforms were targeted at minimizing pending tax related litigation with MNCs. Revenue secretary Sumit Bose quoted, ‘It will be applicable for five years beginning assessment year 2013-14.’
Collectively named as ‘safe harbour’ rules, the new regulations are expected to bring clarification to transfer pricing rules. A gamut of sectors will be benefited by these new rules, including Information technology, automobiles and pharmaceutical sectors.
This tug-of-war between multinationals and tax authorities has now become a global phenomenon and need we say it keeps both the sides on their toes. But amidst all these happenings, many market analysts fear that such regressive decisions may be detrimental to India’s image as an ideal investment decision. Let’s hope, the year 2014 brings with it more clarity to the transfer pricing rules and to the overall tax norms as such, leading to overall betterment of international trade and investment.