I-T dept targets 27 cos on transfer pricing issue in FY13

The income tax department had identified and slammed notices on 27 companies for undervaluing share sales to their associate companies during 2012-13, finance minister P Chidambaram said on Friday in a written reply to the Lok Sabha, reports CNBC-TV18's Aakansha Sethi.

This move of income tax department is likely to lead to many more transfer pricing litigations; Shell India and Vodafone being some of the most famous one.
On Thursday, Shell India filed a writ petition in the Bombay High Court challenging the income tax order, in which the company was accused by the tax authority for under pricing  an intra-group share transfer by Rs.15,000 crore. Earlier in the year, the I-T department has slammed a notice on Vodafone India alleging that the telecom company had under-priced its shares issued to a Mauritius based group company by about Rs 1,300 crore. Also read: India's latest tax target: companies selling below cost
Apart from these two, the other companies in the list of 27 include several Essar Group companies like Essar Telecom, Essar Technology, Essar Power, Essar Construction and Essar Investments. The list also includes HSBC Securities and Capital Markets Limited and Bharti Airtel.
The finance minister on Friday said that most of these companies have been sent transfer pricing notices and some of them have already responded, while some of these are at the stage of the discrete resolution panel. These cases will be resolved in the due course of time, the finance minister told Parliament on Friday.
It has now become very clear that the I-T department is very serious about transfer pricing related tax evasion. The government recently narrowed the 'tolerance band' for international and domestic transactions between two group companies to as low as 1 percent, which used to be around 5 percent in 2011-12.
The tolerance band is the variation allowed between the arm’s length price arrived at by the income tax department and the actual price of the transaction between two group companies.
Higher tax-collection targets set by the income tax department may also be forcing the officers on the ground to send more tax notices which could have resulted in such higher number of companies being under scan for transfer pricing issue.
The government is also arguing that multinational companies (MNCs) are actually undervaluing these share transfers and not only India but even countries under G20 have come together to be more aggressive on tax pricing.