Tech Giants operating in India have been playing with the various finer clauses in the Indian Tax Laws to shrug off Tax Liabilities. Companies like Google, Microsoft, Apple & others have been carefully setting up processes & multiple entities on foreign lands & ensuring their businesses in India relatively remain under the Tax exemption clauses or at least the liability is substantially curtailed.
A while ago, an Indian High Court had taken a landmark decision that since these companies didn’t have a ‘Physical Presence’ In India, they couldn’t be held liable to pay any taxes. Such decisions can have a huge impact especially for companies who might have to pay taxes in thousands of crores of Rupees.
How much do these companies owe: Microsoft seems to be one of the largest manipulator of Indian tax laws along with Nokia. Both have been fighting to avoid paying about Rs. 2000 Crores (US$ 335 Million) in taxes spread over a few years since they have active operations in India. While IBM India is being pulled up for Rs. 1090 Crores (US$ 183 Million), Apple surprisingly has the least liability of Rs. 156 Crores (US$ 26 Million).
How are the companies managing to give the IT Dept. a slip?
These MNCs routinely employ a roundabout method of billing an Indian client or customer. These companies have an entity in corporate Tax friendly country Ireland, from where Indian customers are initially billed. Thereafter the Indian arm of the MNC bills its Ireland counterpart & this way the companies earn & yet manage to avoid Indian Tax liability.
At present, Tax planners refer to such transactions as ‘Ocean Income’, wherein majority part of the income gained in India belongs to no particular country in broad relevance & hence cannot be taxed. In the financial year 2011-2012 alone Google India ‘Paid’ a Distribution Fee of Rs. 570 Crores (US$ 95 Million) to Google Ireland, and booked revenues of Rs. 337 Crores (US$ 56 Million) from its Irish sister company. So far even companies like Vodafone have been held culprit of dealing like this.
While the laws are being slowly & fundamentally amended, many a times with retrospective effect, as long as countries like Ireland exist & these loopholes are not shut-off completely, Indian IT Dept. will be cleverly duped even while staying absolutely legal. Do you think Indian Government should simplify the tax laws to ensure whoever earns on Indian Soil, must abide by the Tax Laws here?
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