• Notification Date: 18-11-2023
• Notification No: N/A

Indian Tax Authorities investigating Apple, Google, Amazon over Rs 5,000 crore Alleged Tax Non-payment

The Income Tax Department is currently investigating the Indian branches of technology giants Apple, Google, and Amazon, regarding potential non-payment of taxes. In connection with an inquiry that commenced in 2021, authorities have requested detailed explanations from these companies concerning their transfer pricing practices. According to an Economic Times report, the department is pursuing a tax demand exceeding Rs 5,000 crore and has dismissed many justifications presented by the companies. 

The Indian entities involved in this investigation include Apple India Pvt Ltd, Amazon Seller Services India Pvt Ltd, and Google India Digital Services Pvt Ltd. The crux of the matter revolves around the transfer pricing adjustments' methodology, leading to what the department perceives as potential tax obligations. This issue spans various assessment years and is currently undergoing investigation and litigation at different forums. 

To represent them in this matter, both Amazon and Apple have enlisted the services of PwC, according to ET sources. 

Transfer pricing refers to the pricing of goods, services, or intangible assets transferred between entities within the same multinational enterprise group. It is a mechanism used to determine the prices at which various components of the group transact with each other. This is crucial for tax purposes and to ensure that transactions between different parts of the company are conducted at fair market value. 

The primary goal of transfer pricing is to prevent the manipulation of prices in intra-group transactions to minimise tax liabilities. By establishing transfer prices that are in line with market rates, countries aim to ensure that companies are not shifting profits to low-tax jurisdictions. 

Transfer pricing can involve tangible goods, such as the sale of products between subsidiaries, as well as intangible assets like the licensing of intellectual property. Companies must comply with transfer pricing regulations in the countries where they operate to avoid potential tax issues and ensure fair and transparent business practices. 

Industry insiders close to these tech giants have informed ET that multinational corporations regularly receive "routine queries" from the department due to disparities in tax calculation methodologies between the companies and the revenue department. If these queries remain unresolved, the companies have the option to appeal before the appellate authority, according to an industry source. 

The Income Tax Department is scrutinising the three tech giants on transactions related to advertising, marketing, promotion expenses, royalty payments, trading, software development segments, and marketing support services. The case primarily involves transactions classified as "international transactions" by the tax authorities, attracting transfer pricing adjustments. However, the companies dispute this analysis, leading to the matters being contested in various forums. 

For Apple, the tax investigation focuses on the Indian arm's purchase of finished products from original equipment manufacturers and subsequent sales in the domestic market. The department contends that this constitutes a deemed international transaction, despite Apple's argument that it falls outside the purview of taxation. 

In Amazon's case, 50 per cent of customer delivery charges were considered part of advertisement, marketing, and promotion costs, resulting in a tax liability exceeding Rs 100 crore. Amazon has contested the Income Tax Department's case on this matter. 

For Google India, the issue revolves around certain transactions not reported as mandated under form 3 CEB, deemed as international taxation by the revenue department, leading to a tax liability on the company. In Google's case, the tax demands from previous years are currently before the Mutual Agreement Procedure (MAP). 

These cases follow different stages of resolution, from the dispute resolution panel to the Commissioner of Income Tax (Appeals), the Income Tax Appellate Tribunal (ITAT), and potentially the high court and Supreme Court. Additionally, companies can opt for the Mutual Agreement Procedure (MAP) for alternate tax dispute resolution under Direct Tax Avoidance Agreements (DTAA).