Income Tax Department Investigates Apple, Google, and Amazon for Potential non payment of taxes

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Published on: November 15, 2023 at 00:11 IST

The Indian Entities of Apple, Google, and Amazon are under scrutiny by the Income Tax Department for potential non-payment of taxes.

The authorities are investigating the transfer pricing (TP) practices of these tech giants, seeking detailed explanations as part of an ongoing probe initiated in 2021. The department is eyeing a tax demand exceeding Rs 5,000 crore and has reportedly rejected many justifications presented by the companies.

The entities involved in the investigation are Apple India Pvt Ltd, Amazon Seller Services India Pvt Ltd, and Google India Digital Services Pvt Ltd.

The core issue revolves around the methodology employed in TP adjustments, leading to what the department perceives as potential tax liabilities. This matter spans various assessment years and is currently at different stages of investigation and litigation across multiple forums.

Amazon and Apple have enlisted the services of PwC to represent them in this investigation. While emails sent to the companies did not elicit a response by press time, industry insiders close to the tech giants mentioned that these routine queries are common due to differences in tax calculation methodologies used by companies and the revenue department.

The investigation delves into TP related to advertisement, marketing and promotion expenses, royalty payments, trading and software development segments, and marketing support services.

The tax department is probing transactions it deems ‘international transactions,’ attracting TP adjustments. However, the companies dispute this analysis, and the matters are being pursued in various forums.

In the case of Apple, the tax investigation primarily focuses on the Indian arm’s purchase of finished products from original equipment manufacturers and subsequent sale in the domestic market.

The department contends this to be a deemed international transaction, leading to alleged tax liabilities. Amazon faces challenges related to the consideration of 50% of customer delivery charges as part of advertisement, marketing, and promotion costs.

For Google India, the investigation revolves around unreported details of certain transactions, deemed as international taxation by the revenue department.

The tax demands arising from previous years in Google’s case are currently before the Mutual Agreement Procedure (MAP). The companies involved have the option to challenge the tax demands at various stages, including the Commissioner of Income Tax (Appeals), the Income Tax Appellate Tribunal (ITAT), and higher courts.

Despite the tax department’s concerns and potential liabilities, the companies emphasize their commitment to adhering to due process and addressing any disputes through the available legal mechanisms.

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