Chinese Company Huawei accused of Tax Evasion by Indian Government

The Indian government has discovered Huawei at the core of a tax evasion investigation. According to a new report by Indian official, the smartphone company was found guilty of falsifying account books in order to lower taxable profits.

The Ministry of Finance previously claimed that a major telecommunications company failed to account for $52 million in revenue. Furthermore, the $63 million in expenses could not be justified.

Government officials searched Huawei’s headquarters in New Delhi, Gurugram and Bengaluru last month. The Income Tax department also looked into the homes of the company’s top executives.

“The search action has revealed that the group made inflated payments against receipt of technical services from its related parties outside India. Evidence gathered also revealed that one of the group entities engaged in providing software development services, has been disclosing lower net margins from the related parties, by claiming its operation to be of low-end nature,” the income tax department said in a release on Thursday.

“The search action has further revealed that the group has manipulated its books of account to reduce its taxable income in India through creation of various provisions for expenses, such as provisions for obsolescence, provisions for warranty, doubtful debts/ loans & advances etc., which have little or no scientific/financial rationale,” the department said.

According to previous reports, Huawei’s financial records over the last three years were scrutinised. The IT officials had compiled a list of the company’s affiliates, clients, and partners, which included both global and domestic partners.

During the investigation, it was discovered that the assessee group had deducted more than 350 crore from its books of account in recent fiscal years for royalty to its linked party. Such costs have been incurred in order to leverage intangibles connected to brand and technological know-how.

During the search, the company was unable to prove receipt of any such services/technical know-how or the basis for calculating the royalty rate for such claim.

The search action also revealed that the group manipulated its books of account in order to reduce its taxable income in India by creating various provisions for expenses, such as provisions for obsolescence, provisions for warranty, doubtful debts/ loans & advances, and so on, with little or no scientific/financial rationale.

Consequently, the rendering of services and such royalty payments become highly questionable and prima facie, disallowable as business expenses as per extant Income Tax law, the statement said.

In a statement released on February 16, Huawei had confirmed the raids. “We have been informed of the visit of the Income Tax team to our office and also of their meeting with some personnel,” the company had said in the statement.

Huawei has also been at the focus of controversy in Canada and the United States. The US has also requested that other countries not include the business in their 5G experiments. As a result, the Indian government did not include the smartphone manufacturer on its list of network equipment vendors. The corporation has repeatedly rejected any security issues.

In a virtual roundtable from Barcelona on Tuesday, Huawei Asia Pacific Vice President Jay Chen stated that the company will include India under all of its projects. He was replying to concerns about Huawei’s commercial ambitions in India in light of the government’s decision to keep it out of the 5G business and from being approved as a trusted source for telecom gear procurement.

The sale of processors and other components used in Huawei’s network gear and smartphone operations has also been hampered by trade restrictions imposed by the US administration.

The move comes amid rising tensions between India and China following a border confrontation between the two countries in 2020. In February, India restricted access to 54 smartphone apps, the majority of which were of Chinese origin, claiming security concerns.