Vodafone wins transfer pricing against IT department
Bombay HC came to Vodafone India's rescue in its battle against the income-tax department over transfer pricing. The appellate tribunal's previous ruling that had gone against the telecom company was inverted. The bench relied on Supreme Court's previous judgment and decreed that "there had been no transfer of call options" and hence the transaction wasn't a case of transfer pricing.
The dispute stemmed from the deal of the Ahmedabad-based call centre business- Vodafone India Services, previously called as 3 Global Services. Vodafone's India arm was slapped with a transfer pricing order by the I-T department seeking to attach Rs.8,500 crore to its taxable earnings for 2008. The tax officials said the transaction was an "undisclosed, international transaction" and, therefore, transfer pricing criteria applied.
Transfer price is the exact price at which a sale takes place between two related companies, usually pertaining to the same group. According to law, "all cross-border deals between group companies need to be at arm's length, that is, as if it was with an unrelated company."
On 27 December 2013, the Income Tax Appellate Tribunal (ITAT) stayed a Rs.3,700 crore tax claim on Vodafone by the I-T department. It asked Vodafone to place Rs.200 crore as first payment and present bank guarantees for the outstanding sum. Previously, tax department had made Rs.3700cr demand in December 2013 and had said that the company should pay 50% to get a stay order.
In December 2014, the ITAT decreed that the trading of the call centre industry was an 'international trade' and that "assignment of call options had taken place." Therefore, the tax department had the authority to advance against the company. However, ITAT bench did not accept the estimate arrived at by the tax department and sent it back for reassessment.
In January 2015, Vodafone challenged the order in the Bombay High Court. Vodafone India's arm contended "that call options were not part of the transaction and so it did not attract the transfer pricing" and hence the additional tax burden was unfair. In September 2015, the Bombay High Court set down the Tribunal's order on Vodafone tax notice.
Global majors including IBM Corp, Royal Dutch Shell Plc and Nokia Oyj are also fighting transfer-pricing cases in India, and this order comes as a ray of hope for them.