Apple, Google and Amazon's Indian units are under taxmen's lens over potential non-payement of taxes that might exceed Rs 5,000 crore, according to a report.
The Income Tax Department, as part of a 2021 investigation, has asked the Indian arms of the US tech giants to come up with detailed clarifications regarding their transfer pricing (TP) methodologies, reported The Economic Times.
The I-T authorities have dismissed earlier explanations given by the companies – Apple India Pvt Ltd, Google India Digital Services Pvt Ltd and Amazon Seller Services India Pvt Ltd – regarding their transfer pricing practices and are probing if the adjustments would result in the tax liabilities of more than Rs 5,000 crore, said the report, citing sources.
What is transfer pricing?
According to the I-T Department, transfer price is “the actual price charged in a transaction between related entities which are part of the same Multi National Enterprises (MNE) group.”
This could extend to cross-border transactions between companies and their units in foreign countries.
Since tax rates vary in different countries, MNE groups could set transfer prices for transactions between its group members as a result of which the overall tax liability is minimized, says the tax department.
This would mean that that company could set transfer prices in such a way that less profits are booked in countries with higher tax rates and thereby eroding the tax revenues of the host country.
There are chances that some companies might misuse this accounting practice by altering their taxable income in order to bring down their overall taxes. Hence, the I-T authorities sometimes look into such cross-border transactions within the businesses
The ongoing investigation is regarding international transactions related to advertising, marketing and promotion expenses, royalty payments, trading, software development segments and market support services, which are subject to TP adjustments, the report added.
