Income Tax Turns Lens on Google, Amazon and Apple for Rs. 5000 Crore Demand over dispute

The Income Tax Department is now investigating the Indian subsidiaries of technological behemoths Apple, Google, and Amazon for alleged tax evasion. Authorities have asked thorough explanations from these corporations over their transfer pricing practises in conjunction with an investigation that began in 2021. According to a report, the government 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 insiders, Amazon and Apple have both hired PwC to represent them in this matter.

The pricing of commodities, services, or intangible assets moved between organisations 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 organisation are carried out at fair market value.

The basic purpose of transfer pricing is to prevent price manipulation in intra-group transactions in order to reduce tax liability. Countries hope to prevent corporations from transferring earnings to low-tax jurisdictions by establishing transfer prices that are in accordance with market rates.

Transfer pricing can involve both tangible items, such as the transfer of products between companies, and intangible assets, such as intellectual property licencing. To prevent potential tax concerns and to maintain fair and transparent business practises, companies must comply with transfer pricing legislation in the countries where they operate.

As per industry insiders close to these tech titans, global organisations 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 categorised 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 finished items from original equipment manufacturers and subsequent sales in the local market. Despite Apple’s claim that it is not subject to taxation, the government maintains that this is a considered foreign transaction.

In Amazon’s case, 50% of customer delivery prices were considered advertising, marketing, and promotion costs, resulting in a tax liability of more than Rs 100 crore. Amazon has challenged the case of the Income Tax Department in this affair.

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).