Shell Denies Tax Evasion in India

Luke Macgregor/Reuters A Shell gas station in London.

The Indian unit of the Anglo-Dutch oil company Royal Dutch Shell said Monday that it would challenge a notice by the Indian tax authorities alleging tax evasion through the transfer of shares.

Deepak Mukarji, a Shell India spokesman, said that the company had received an order on Friday from the income tax department of India that accused Shell India of evading taxes by underpricing a share transfer within the group by approximately $2.8 billion.

At the center of the controversy is a share sale by Shell India to Shell Gas BV, its overseas parent , in March 2009. Shell India issued shares worth 870 million rupees ($160 million) to Shell Gs BV, or 87 million shares at a value of 10 rupees per share, but the Indian tax authorities now contend that each share was actually worth 183 rupees.

Shell India said that the tax agency’s order was based on an incorrect interpretation of the Indian tax regulations.

“Recent media reports on tax evasion are baseless, and Shell India will challenge this order strongly and is evaluating all options for redress,” said Yasmine Hilton, chairman of the Shell Group of Companies in India, in a statement.

The company is the latest in a series of international companies to enter into disputes with the Indian tax authorities, creating uncertainty among foreign investors. In the highest-profile ! case, the British telecommunications company Vodafone Group has started legal proceedings against the Indian government over a $2 billion tax notice related to its 2007 acquisition of Hutchison Essar.

“Taxing the money received by Shell India is in effect a tax on Foreign Direct Investment (F.D.I.), which is contrary not only to law but also to the spirit of the recent global trip by the finance minister to attract further F.D.I. into India,” Ms. Hilton said in the statement.

The company said that the share issuance complied with the terms of the country’s foreign investment policy, the prevailing exchange control regulation, the applicable corporate and related laws. It also said that the certified independent valuer had assessed the shares in accordance to foreign investment and exchange control laws.

Officials at India’s Finance Ministry were not available forcomment.