British telecom giant Vodafone has the transfer pricing tax dispute case against Indian Income Tax authorities after Bombay High Court ruled in its favour.
The court decision came after Vodafone India had challenged the order of the Income Tax Appellate Tribunal (ITAT). In 2014, the IT tribunal had stayed the tax demand during the proceeding of the case and had asked Vodafone India to deposit 200 crore rupees by February 2014.
What is the case?
- Income tax authorities had imposed Rs. 3,700 crore transfer pricing tax on Vodafone India over the capital gains made by the company after selling its call centre business to its Mauritius based subsidiary in 2008.
- Vodafone had argued that the IT Department has no jurisdiction in this case because the transaction was between it and its subsidiary. It also had mentioned that the transaction was not an international one so it does not attract any tax.
- IT Department had claimed that Vodafone’s Indian arm had deliberately sold its shares at a lower price (undervalued). These shares were sold to third party at market price making huge capital gains from the deal.
What is Transfer pricing?
- Transfer pricing is referred to the fixing of the price for goods and services sold between related legal subsidiaries (entities) within an enterprise.
- This is to ensure fair pricing of the asset transferred without any manipulation of reduce tax liability.
- For example, if a subsidiary company sells goods to a parent company, then the cost of those sold goods is deemed as transfer price.