The Indian Tax Authorities is now investigating the Indian subsidiaries of technological behemoths Apple, Google, and Amazon for alleged tax evasion. Authorities have asked thorough explanations from these companies over their transfer pricing procedures in connection with an investigation that began in 2021. According to an Economic Times report, the department is pursuing a tax claim in excess of Rs 5,000 crore and has rejected several of the companies’ reasons.
Apple India Pvt Ltd, Amazon Seller Services India Pvt Ltd, and Google India Digital Services Pvt Ltd are among the Indian companies participating in this probe. The essence of the issue revolves in the process of transfer pricing adjustments, which leads to what the department regards as prospective tax obligations. This issue covers several assessment years and is currently being investigated and litigated in numerous forums.
According to ET sources, Amazon and Apple have both hired PwC to represent them in this dispute.
Indian tax authorities
The pricing of commodities, services, or intangible assets moved between organizations within the same multinational company group is referred to as transfer pricing. It is a technique for determining the pricing at which diverse members of the group transact with one another. This is critical for tax considerations as well as ensuring that transactions between different areas of the organization are carried out at fair market value.
Transfer pricing can involve both real items, such as the transfer of products between companies, and intangible assets, such as intellectual property licensing. To prevent potential tax concerns and to maintain fair and honest business practices, companies must comply with transfer pricing legislation in the countries where they operate.
According to industry insiders close to these tech titans, global organizations receive “routine queries” from the department on a regular basis due to differences in tax calculation procedures between the companies and the revenue department. According to an industry source, if these questions are not answered, the corporations can file an appeal with the appellate body.
The Income Tax Department is looking into transactions involving advertising, marketing, and promotion expenses, royalty payments, trade, software development segments, and marketing support services. The case principally includes transactions categorized as “international transactions” by the tax authorities, which are subject to transfer pricing adjustments. However, the firms reject this analysis, causing the issues to be litigated in multiple places.
The tax probe focuses on Apple’s Indian arm’s purchase of completed goods from original equipment manufacturers and subsequent domestic sales. Despite Apple’s claim that it is not subject to taxation, the government claims that this is a considered foreign transaction.
The issue for Google India is around certain transactions that were not recorded as required under Form 3 CEB and were deemed as foreign taxes by the revenue department, resulting in a tax liability for the company. In Google’s instance, previous-year tax claims are currently before the Mutual Agreement Procedure (MAP).
These matters progress through several rounds of resolution, beginning with the dispute resolution panel and ending with the Commissioner of Income Tax (Appeals), the Income Tax Appellate Tribunal (ITAT), and possibly the High Court and Supreme Court. Furthermore, under Direct Tax Avoidance Agreements (DTAA), businesses can use the Mutual Agreement Procedure (MAP) for alternative tax dispute resolution.