Bombay High Court ruled in favor of Vodafone in transfer pricing dispute of Rs.3200 crore regarding under-priced valuation of shares. There are atleast 20 other companies that are facing the same disputes and the ruling of Bombay High Court in favor of Vodafone gives relaxation to these 20 companies to the some extent.
Vodafone India (Subsidiary) issued the right share at share premium to its UK based Parent Company ( Vodafone Group Plc) and method for the valuation of share was duly approved by RBI. However tax department disputed on valuation at which Vodafone India had issued shares to its UK based parent company, the tax department used a methodology called discounted tax flow to arrive at a higher value per share. Department has accused Vodafone India for violating transfer pricing regulations by claiming that the value of right share had been under-priced which is meant the Parent company ( Vodafone Group Plc) paid less to get a higher stake in Vodafone India and the same is liable to tax.
Now the question arises whether the issuance of shares gives rise to income under transfer pricing regulation? Continue reading