India’s Income Tax Department is currently conducting an investigation into the Indian branches of technology giants Apple, Google, and Amazon, focusing on potential non-payment of taxes.
The inquiry, initiated in 2021, involves detailed examinations of the companies’ transfer pricing practices. Authorities are pursuing a tax demand exceeding Rs 5,000 crore, dismissing justifications provided by the tech giants.
Entities under investigation include Apple India Pvt Ltd, Amazon Seller Services India Pvt Ltd, and Google India Digital Services Pvt Ltd. The investigation focuses on the practice of transfer pricing adjustments, raising concerns about potential tax obligations spanning multiple assessment years.
Both Amazon and Apple have reportedly engaged PwC to represent them in this matter, according to reports.
Transfer pricing involves determining prices for goods, services, or intangible assets transferred between entities within the same multinational enterprise group. It is a crucial mechanism for tax purposes, aiming to ensure fair market value transactions within the company group.
The primary goal is to prevent the manipulation of prices in intra-group transactions, thereby avoiding profit shifting to low-tax jurisdictions.
Industry insiders have indicated that routine queries from tax authorities are common for multinational corporations due to disparities in tax calculation methodologies. If unresolved, companies have the option to appeal before the appellate authority.
The cases are at different stages of resolution, involving dispute resolution panels, the Commissioner of Income Tax (Appeals), the Income Tax Appellate Tribunal (ITAT), and potential recourse to the High Court and Supreme Court. Additionally, companies can opt for the Mutual Agreement Procedure for alternate tax dispute resolution under Direct Tax Avoidance Agreements.
The tax investigation scrutinizes transactions related to advertising, marketing, promotion expenses, royalty payments, trading, software development, and marketing support services. The cases involve “international transactions,” attracting transfer pricing adjustments, but the companies dispute this analysis, leading to contested matters in various forums.
For Apple, the investigation focuses on the purchase and sale of finished products in the domestic market. The department considers it a deemed international transaction, while Apple argues it falls outside the purview of taxation.
In Amazon’s case, customer delivery charges are considered part of marketing costs, resulting in a tax liability exceeding Rs 100 crore, a claim contested by the company.
For Google India, the issue revolves around certain unreported transactions, deemed as international taxation by the revenue department, leading to a tax liability. Google’s tax demands from previous years are currently under the Mutual Agreement Procedure.
(With input from agencies)